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India’s New E-Commerce Regulations Challenge Big E-Retailers

By Elliot M. Kass

India’s retail market is dominated by small stores and sellers who are feeling the competitive heat thanks to the rapid growth of large e-commerce marketplaces. To address their challenges, India’s government has passed new rules and regulations aimed at restricting how large e-retailers conduct e-commerce within the country. U.S.-based import-export businesses selling into India may wish to know more in order to avoid running afoul of those laws.

The first set of India’s new e-commerce rules and regulations was issued in late December 2018, barring e-retailers from selling products from companies in which they have an equity stake, or entering into exclusive agreements with sellers. The government said the new rules are aimed at protecting local Indian retailers, who had complained that the scale of some foreign sellers’ e-commerce platforms gave them an unfair advantage.1

 

In a second round of e-commerce rule-making, drafted in February 2019, India proposed to further restrict the online retailers by calling for data to be stored locally and for more data centers and server farms to be located within the country. These moves could boost Indian e-retailers and high-tech companies at the expense of foreign competitors, who would see their costs rise.2

 

Will India’s New E-Commerce Regulations Challenge Local Businesses?

 

But the new e-commerce policies could also challenge the local economy. For example, the new e-commerce regulations have reportedly already caused reduced sales for local sellers that rely on sales through the e-commerce giants.3 Amazon India and Flipkart, which together account for more than 70 percent of the country’s online sales to consumers, have reportedly pulled thousands of products offline.4

 

Analysts also warn of a chilling effect on foreign investment, such as Walmart’s $16 billion purchase of a majority-stake in Bengaluru-based Flipkart in 2018. PwC estimates that the restrictions could reduce e-commerce activity by $46 billion, along with corresponding job losses, if the industry’s biggest players have to revamp their business models.5

 

India was the world’s fastest-growing large economy in 2018, with a 7.3 percent rise in GDP,6 and e-commerce is the country’s fastest-growing and most dynamic industry. At the current rate of growth, the country’s online retail transactions are expected to reach $64 billion by 2020 and $200 billion by 2026. That would place India ahead of the U.S. and make it the world’s second-largest e-commerce market.7

 

Growth in the e-commerce industry has made it easier for U.S. companies to sell their products in India, a market that has become increasingly attractive as household income continues to rise and consumers demand better quality merchandise from abroad. Approximately 1.2 million online transactions take place daily, and the country’s retail sales are expected to grow 12 percent annually, crossing the $1 trillion threshold in 2020.8

 

Support from India’s Small Businesses

 

Support for the government’s e-commerce regulations comes from Indian political and trade associations such as the Confederation of All India Traders (CAIT) and Swadeshi Jagran Manch (SJM). These organizations lobby on behalf of the country’s small-scale retailers and traders who complain that large e-commerce marketplaces use their affiliates’ inventory to sell certain products at artificially low prices. In 2018, the All India Online Vendors Association (AIOVA) filed petitions with the anti-trust agency Competition Commission of India (CCI), alleging that two foreign-owned e-commerce markets favored merchants in which they have ownership stakes.

 

Many of the small retailers that CAIT and AIOVA represent are currently launching their own online presence. There are roughly 51 million small businesses in India, and research shows that Indian retailers with an online sales channel can grow at twice the rate of firms that rely solely on brick-and-mortar outlets.9

 

Under the government’s new regulations, any e-commerce marketplace provider, whether local- or foreign-owned, cannot generate more than 25 percent of its total sales from a single vendor. The rules take aim at e-retailers that use their platforms to sell private-label merchandise made exclusively for them.

 

The

Takeaway:

India’s new e-commerce regulations aim to help the country’s small businesses by placing restrictions on large e-commerce marketplaces. U.S. import-export businesses will need to understand and comply with these new laws in order to sell through large e-retailers in India.

Elliot Kass - The Author

The Author

Elliot Kass

Elliot Kass is a journalist who has covered global business and technology from New York, London, and San Francisco for more than 30 years.

Sources

1. “India's tightens e-commerce rules, likely to hit Amazon, Flipkart,” CNBC, https://www.cnbc.com/2018/12/26/indias-tightens-e-commerce-rules-likely-to-hit-amazon-flipkart.html
2. “India proposes new e-commerce regulations with focus on data rules,” Reuters, https://www.reuters.com/article/us-india-ecommerce/india-proposes-new-e-commerce-regulations-with-focus-on-data-rules-idUSKCN1QC0LO
3. “Walmart, Amazon shape online sellers lobby to fight new e-commerce rules,” Business Standard; https://www.business-standard.com/article/companies/new-lobby-group-in-the-making-to-take-up-e-commerce-concerns-119020401327_1.html
4. “Amazon and Walmart hit hard after new e-commerce rules in India restrict sales,” The Verge, https://www.theverge.com/2019/2/1/18206538/amazon-walmart-flipkart-india-e-commerce-rules-regulation-chaos
5. “The Dark Side of India’s New E-Commerce Rules,” PYMENTS.com, https://www.pymnts.com/news/regulation/2019/india-ecommerce-rules-amazon-flipkart-smbs/
6. “India: Real gross domestic product (GDP) growth rate from 2012 to 2022,” Statista, https://www.statista.com/statistics/263617/gross-domestic-product-gdp-growth-rate-in-india/
7. “India – eCommerce,” export.gov, https://www.export.gov/article?id=India-e-Commerce
8. Ibid.
9. “The Dark Side of India’s New E-Commerce Rules,” PYMENTS.com, https://www.pymnts.com/news/regulation/2019/india-ecommerce-rules-amazon-flipkart-smbs/

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