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The Dark Side Of India’s New eCommerce Rules

And so, nationalism comes full force to Ecommerce, focused on the United States and India, offering another drama, another stage, another possible battle over trade.

Who wins? Perhaps nobody, if the skirmish becomes a war.

A Bit of History

While all eyes may be focused on China and the U.S., and the prolonged battle over tariffs, another cross-border controversy has been taking shape with speed.

As has happened so far, India’s government said late last year that new eCommerce regulations would become the law of the land – at the end of this week, on Feb. 1.

The rules mandate that eCommerce marketplaces operated by tech juggernauts such as Amazon and Flipkart (and, by extension, Walmart, which owns 77 percent of Flipkart) won’t be able to sell offerings that come from companies in which they have equity stakes – translating into part-ownership, of course.

Private-label sales are (and possibly should be) coveted by almost any firm, as they have higher margins, in general, and also enable companies to control at least some aspects of the supply chain, ensuring quality control and perhaps even some customer stickiness.

Other stipulations are in place that also have the impact of shaping how foreign companies enter India’s eCommerce marketplace. The aforementioned firms are not allowed to cement “exclusive” deals with sellers. Call it competition as mandated by legislation.

The changes are sweeping enough that Amazon and Flipkart have lobbied for extensions to the Feb. 1 deadline. Assuming no pushout or subsequent reworking of the rules, the laws would have the impact, as PwC and Reuters have noted, of hampering growth in eCommerce. PwC has estimated that the foreign investment restrictions could shave off $46 billion in commerce done digitally, if bigger eCommerce firms have to retool the way they do business. In tandem, more than 1.1 million fewer jobs would be created, and the government would collect $6 billion less in taxes.

It’s been widely held, as stated here, that the new eCommerce rules are part of the incumbent administration’s effort to, well, stay incumbent in the wake of May elections. The rules take their place as a populist leg of Prime Minister Narendra Modi’s platform. Small business owners, we can assume, are among voters to be coveted, as there are roughly 51 million SMBs in the country.

Many of those businesses are in the midst of coming online, as part of a Google-led initiative struck two years ago. Google and KPMG said back then that firms with an online presence are able to boost their revenues twice as quickly as companies that remained solely brick-and-mortar in nature.

It is the smaller businesses that have held the ear of Modi’s government, which of course has had the Startup India program in place for three years. That program has recognized more than 15,400 companies as startups, creating more than 148,000 jobs. As was reported last month, the India Online Vendors Association said the eCommerce arena has been dominated by Amazon and Flipkart, and where the association said in a letter to the prime minister that steps should be taken to address that dominance by the two firms, asserted to be as much as three quarters of online sales.

…and a Bit of Nationalism

As the deadlines loom, Flipkart has asked for a six-month extension, and Amazon would like a four-month extension.

The most recent, and perhaps most telling, hints of nationalism-as-economic-policy came a few days ago, when a Hindu nationalist group described by Straits Times as being “close” to Modi’s government said that India should not push back those deadlines. The economic wing of that group, Rashtriya Swayamsevak Sangh, said that more than 130 million smaller entrepreneurs in India would be harmed by any deferment of the deadline.

“There is no need to buckle under these pressures. India must continue to chart the way best for itself and the entrepreneurs,” wrote Swadeshi Jagaran Manch in a letter quoted by Reuters.

Nationalism, it might be said, has been coming to the forefront of how India’s markets are shaped and how they operate across all manner of cross-border interactions. There also has been controversy over data storage. Earlier this month, India’s government asked the two eCommerce giants to store payments data inside of India. That request comes in the wake of decisions making it mandatory that Visa and Mastercard store such information inside the country.

There’s a lot at stake here, of course, as Morgan Stanley has estimated that India’s eCommerce market could be worth as much as $200 billion through the next decade (without factoring in the way the landscape might change with the eCommerce rules that will hit on Friday).

Interestingly, recent headlines also bear out India’s increasing mulling of what other business arenas should look like, including, of course, foreign direct investment. Consider the news that last week, the Reserve Bank of India said it was seeking public comment on new retail payment systems, a nod toward reducing concentration in that space.

The National Payments Corporation of India manages roughly 10 different payments platforms that process roughly 46 percent of transactions. The central bank wants to reduce the risk of such concentration across banks and non-banks alike (and where payments firms like Visa already have a foothold).

Chekhov’s Rule

In the meantime, the rules, as they are, should they go into effect this week as promised, may hit the very end user coveted by Amazon, Flipkart and small businesses in India alike. If the giants are not allowed to offer heavy discounting through, say, private labels or joint ventures (preferred vendors), then prices may be higher than they might otherwise have been. Recall, of course, that no foreign-funded marketplace can source more than 25 percent of its goods from a company associated with a given online marketplace.

In the meantime, Reliance Industries said just this past week that it would debut a new eCommerce retail platform aimed at smaller firms, and aimed at “data colonization” via the two U.S. firms. The new rules will not apply to Reliance because it is an Indian firm.

For Amazon and Flipkart’s ecosystem, vendors will not be able to sell their products exclusively through a platform, which seems to eliminate choice. There may be a chilling effect on foreign direct investment, and on deals such as Walmart’s $16 billion investment in Flipkart last May.

The latest back-and-forth over eCommerce has included the word “bilateral” – which implies, of course, actions that can and will affect both sides. Might we see some blowback if India forges ahead with the new restrictions on eCommerce platforms?

Reuters reported that the U.S. government has brought up the fact that there are “good relations” between India and the U.S. The government has also said that American companies should be given “concessions in the larger interest of bilateral trade,” and the newswire said that India gave a “non-committal” response, as the source added.

There’s an old rule in writing, compliments of Chekhov: “If in the first act you have hung a pistol on the wall, then in the following one it should be fired. Otherwise, don’t put it there.” Might the comments from the U.S. side of the equation be tantamount to a discussion of firepower?

The jousting between China and the U.S. has shown just how quickly trade spats can spiral, and how quickly economic impact can be felt. So it may be with trade policy between India and the U.S., leading ultimately to a situation that benefits … no one.

The post The Dark Side Of India’s New eCommerce Rules appeared first on Breaking News on Tech, Sports, Entertainment.

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The Dark Side Of India’s New eCommerce Rules


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