How e-commerce will be impacted by the government's new draft policy

Brand experts share their views on the new policy and if this will mark a new beginning for the retailers as they contribute to be a major vote bank for any political party

e4m by Dolly Mahayan
Updated: Jan 14, 2019 9:17 AM

Last week the Indian government clean bowled e-commerce players when it announced to issue a new draft policy for e-commerce market very soon. The decision by the Department of Ministry and Commerce could be seen as a step to protect the business of small retailers. It has also appointed a nodal agency, the Department of Industrial Policy and Promotion (DIPP) to look into the matter of drafting the policy. Recently, it had introduced many changes to foreign direct investment regulations, banning e-commerce players from selling products from entities in which they have an equity interest, restraining huge discounts on products, and denying exclusive tie-up with any brand. 

The new policy could also be seen as a calculated move by the government to excite offline retailers, sighting general elections in the coming months. The retailers were already not happy with the implementation of demonetisation and GST, as it hampered their business for a long time, especially the small storeowners. The new policy to regulate e-commerce business has already raised concerns by big players like Amazon and Walmart. However, the million dollar question is how the new policy will impact the e-commerce industry or will this mark a new beginning for the retailers. Is this a New Year gift by the government to woo retailers as they contribute to be a major vote bank for any political party? We spoke to brand experts to understand their views on the new policy.

Repercussion on the e-commerce industry

According to N Chandramouli, Founder of TRA, “Deep discounting by e-commerce impacts offline retail sales, as the value-conscious Indian consumers naturally gravitate towards lesser price. Consumers initial attraction to e-commerce has come due to discounts, just the market was built by Ola or Uber, and if the discounts go away, so will the customers”.

“The consumer also now wants to experience the product before purchase, something that is evident by the changes happening in organised retail. They are converting large 'mall' like spaces into retail experience centres. Perhaps, the return of the consumer to brick-and-mortar will speedup up due to the discounting restrictions,” he adds.

However, Saurabh Uboweja, Brand Expert and CEO, Brands of Desire, believes, If the policy is implemented in its true spirit, it could significantly impact the Gross Merchandise Value (GMV) of the leading e-commerce players in the short term.

Brand Guru, Harish Bijoor states, “Discounts have been the bane of the commerce industry. The business has forever been in the grip of discounts. To that extent, offline players have always complained. A keener scrutiny on discounts will really need e-commerce players to redefine their play, with the solids of a business mindset rather than the gas of discounts. The impact will be palpable, much to the delight of offline players in retail spaces”.

Government’s vote bank strategy for retailers

One of the reasons behind the government’s new move could be the general election, which are going to be held three-four months from now. To which Bijoor agrees and says, “The trading community is a very important part of the vote bank to any political party. If the trader is not with you, a huge chunk of votes go to the Opposition”. 

Chandramouli also admits, “There has been mounting pressure on the government from the trading and retail community over the last few months. This move will naturally help pacify this very large voting group”.

Whereas Uboweja explains, “Policy announcements in months leading to elections will be naturally seen from the political lens. The offline retailers’ community represented by Confederation of All India Traders (CAIT) is more united than ever and has been pressurising the government for quite some time now. They are an influential trade body today covering a significantly large voter bank. Ignoring their demands could prove to be very costly for the incumbent government given that small traders have already suffered the most with demonetisation and the introduction of GST.”

Are e-commerce players ready for the change?

The e-commerce players, especially those with big investments made in India will naturally feel the brunt of this. Apart from this, there are many unique Indian e-commerce companies which have a unique model, and they too are going to be impacted as fresh FDI will get stalled due to this.

“Imagine a Walmart, having invested $16bn in Flipkart just recently, suddenly gets hit by such a regulation. Its expected growth with the acquisition comes in jeopardy,” expresses Chandramouli.

Bijoor pointed out, “e-commerce players will use this opportunity to strengthen their image led brand offerings as opposed to price led commodity offerings. At last, e-commerce players need to start thinking like brands, rather than commodity players that play on price arbitrage.”

Uboweja shares, “e-commerce players have been playing on the edge for quite some time and have benefitted from unfair trade practices to grow their wallets. Some of the policy elements were already in effect but weren’t implemented well. It is unlikely that the policy came as a surprise to them. What they will seek is time to enforce the new draft so that they can manoeuvre their financial and business operations to align with the law of the land.”

A dire need of a policy for e-commerce

While, we all agree that online shopping has changed the entire landscape of shopping in India, we couldn’t deny the heavy losses faced by the e-commerce companies, due to the deep discounting. Is it, the need of the hour that we need an appropriate policy for e-commerce industry as well? 

Explains Uboweja, “e-commerce companies have made losses because of heavy discounting to grow their user base. This is similar to the state of the aviation industry in India, where airlines are under-pricing the travel fares to grow their traveller base. As a strategy, it can be effective for a short to mid-term but is certainly not business sustainable in the long term. We must credit the e-commerce companies for contributing to the creation of a totally new industry and millions of direct and indirect jobs, however, they may not be allowed a home run going forward as it may prove counterproductive to creating an environment of healthy competition if, we are left with only a few large players controlling trade.” 

“e-commerce is an evolving sector with many new business models and approaches. The policy approach to e-commerce has to be open and exploratory, not closed and restrictive. It is here to stay, and instead of playing online versus offline in policymaking, it has to have an inclusive approach, adds Chandramouli”.

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