Not many who order things on Amazon in India know that they are actually buying from Cloudtail or Appario Retail. Most buyers, instead, assume that the seller is Amazon itself. For them, it matters little that Amazon India or Flipkart, whose owners are both foreign entities, are allowed to operate only as e-commerce “marketplaces” and not “retailers”. These distinctions — you can buy through, and not from, them — were made only with a view to protect domestic brick-and-mortar retailers, even as Indian consumers took to online shopping with gusto. With the country’s e-commerce market growing from $11 billion to $36 billion between 2012 and 2017, and expected to touch $150 billion by 2022, it led to huge investments in warehouses, delivery stations and logistics infrastructure. In the process, thousands of jobs — for sorting and packaging products, loading and transporting these by trucks, and reaching these to the end-consumer — also got created.
All these gains stand threatened by the Narendra Modi government’s latest review of its policy on foreign direct investment (FDI) in e-commerce. This review, ostensibly aimed at providing “clarity”, says that an e-commerce marketplace entity cannot own equity in any company that sells goods and services through its platform. An e-commerce marketplace can only act as a facilitator between seller and buyer. It cannot exercise ownership or control over the goods to be sold. If the seller were to source more than 25 per cent of its goods from the e-commerce marketplace entity or group companies, such inventory would be deemed as being controlled by the latter. The new FDI policy guidelines, in other words, make it impossible for Amazon to sell products through Cloudtail or Appario in which it has significant indirectly-held stakes. They also put paid to Walmart’s ambitious online retail plans for India. Clearly, neither Amazon’s $5 billion investment commitment in the country nor Walmart’s $16 billion acquisition of 77 per cent stake in Flipkart were made simply in order to operate an IT platform for others to sell. That was only the first step. The implicit understanding was that they would eventually be allowed to sell directly to consumers — which is where the real money is to be made.
The Modi government’s so-called clarification to FDI rules in e-commerce is obviously meant to pander to the ruling party’s traditional trading community base ahead of the coming Lok Sabha elections. It only reinforces old fears of policymaking in India being hostage to uncertainty and unpredictability. We saw that play out also in the retrospective taxation case vis-à-vis Vodafone and in the revocation of Monsanto’s Bt cotton patents. The disturbing part in all these is that they concern companies which have invested not small sums in India, while creating both value and employment opportunities here. Retrograde actions may produce political gains, but these are short-term at best.