E-commerce companies are being pushed back in multiple ways by both the government and brick-and-mortar retailers.
While this move could impact future investments in India’s retail sector, its impact in electoral politics for the Modi government could also be limited.
Revised e-commerce regulations introduced a few days back have led to much consternation in e-commerce companies. In particular, the rule prohibiting sellers having equity participation in an e-commerce marketplace or its group companies from selling products on its platform has created a gigantic problem worth Rs 2,000-2,500 crore each for Amazon and Flipkart.
The figure pertains to the value of the inventories that each of these large players has at its disposal at a given point of time, which is pushed by seller entities like Cloudtail and RetailNet. E-commerce firms typically keep inventory of around 3 months in product categories like fashion, accessories and other such categories from brands that they have associated with. Expectedly, these companies would be targeting clearance of this inventory in a month, as the new norms come into effect from February 1, 2019.
Surprising and unpredictable policy tweaks like these could be bad for FDI, which has been a major focus area of the Modi government. These changes are being seen as last-minute populist measures, apart from GST rate rationalization, support programmes for farmers, etc, possibly in view of the setback to BJP in five state elections and the General Elections looming.
However, the government doesn’t seem to be winning back its core voter base either. E-commerce firms are predictably shocked by the changes in rules, but even the 25 million odd small traders in India see the ‘course correction’ as too little, too late. They have been lobbying incessantly for curbs on practices like deep discounting and predatory pricing. But small traders are largely unhappy with Modi’s broken promise of preventing the entry of foreign companies into India’s retail sector.
“We clapped and voted for Modi believing in his promises. But what have we got is just a slap on our face,” says Pankaj Revri, president of a furniture market association in central Delhi to ET. According to B.C. Bhartia, president of the Confederation of All India Traders, some small businesses have seen a drop in earnings by over 50% in the face of competition with American giants.
These retailers and traders believe that Modi ignored their pleas and allowed e-commerce companies to use major policy loopholes to undermine their interests. Meanwhile they are already stung by the twin impact of Demonetisation and GST.
In all, the policy changes have stumped e-commerce firms and could impact India’s economic prospects. On the other hand they seem to be doing little for the interests of either the offline traders or the government.
Is it any wonder, therefore, that no one is smiling?