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India is probably the only country in the world where a seamless business like retail is spliced into complex and artificial compartments like single brand retail, multi-brand retail, et al, to placate the powerful trader lobby

History is littered with evidences that political motivations overshadow the fundamental principles of policymaking in India. Indian policymakers also have an uncanny knack for sitting on the fence for a woefully long time and then go for the overkill with botched-up policies and guidelines.

There’s a famous saying in the startup world – first there’s the innovators, then there’s the imitators, and then there’s the idiot. So, when the Department of Industrial Promotion & Policy (DIPP) unveiled its policy guidelines for foreign direct investment (FDI) in e-commerce last week, I was convinced that the idiot has arrived.

Legitimising an “unrecognised” segment in FDI policy framework…

That said, a formal policy framework for India’s e-tailing sector was long overdue. In fact, last year, the Retailers Association of India filed a petition in the Delhi High Court alleging that e-tailing firms were flouting FDI rules. In January, the DIPP told the Court that the marketplace model is “not recognised” in the FDI policy.

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Last week’s guidelines simply legalized foreign investments in e-tailing. That’s all. Now foreign capital can continue to merrily bankroll India’s e-tailing juggernaut, as long as they follow the marketplace model (and not directly sell to the consumers), which means facilitate the sale of goods and services on the platform by third-parties.

…through retrogressive guidelines in a progressive world

The two caveats were the most laughable part of the guidelines: 1) A marketplace player cannot allow one vendor or its group companies to account for more than 25 per cent of sales through its platform. 2) A marketplace player “cannot directly or indirectly influence the sale price of goods and services and shall maintain a level playing field”.

Who will monitor that this 25 per cent threshold is being adhered to? What happens if most buyers prefer a particular seller on a platform over others? Will they be forced to choose a different seller for fear of breaching the 25 per cent cap? How will the fact of “influence,” direct or indirect, be established? Above all, why is this veiled attempt to control prices? There is no mention of Indian-owned marketplaces, should we assume that e-tailers wholly-owned by Indian investors are exempt from these restrictions?

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Such policies were rampant during the License Raj of the 90’s, when the sole purpose of policies was to favour the traditional incumbents known to be close to the ruling elite. Such policies are against the statement intent of improving the ease of doing business in India. Twenty-first century businesses need twenty-first century regulations.

The press note issued by DIPP on the afternoon of March 29 reads: “The above decision will take immediate effect”. Shouldn’t the government have given a reasonable timeframe for those who suddenly found themselves non-compliant? Usually, a policy comes into effect through the Gazette notification, and not through a press note. Why the hurry?

FDI in retail: To do or not to do

That’s the real reason behind this e-commerce policy confusion. India is probably the only country in the world where a seamless business like retail is spliced into complex and artificial compartments like single brand retail, multi-brand retail, et al, to placate the powerful trader lobby.

That’s why a party known to be business-friendly, which was in favour of 100 per cent FDI in retail 2004, did a complete volte-face to keep its stakeholders happy. It’s unfortunate that while our Prime Minister goes around the world trumpeting the arrival of India as an economic super power, we – the consumers – are still being held hostage by groups and interests that are satiated by protectionism and unwilling to get out compete.

And in this pseudo progressive world, Indian consumers remain the biggest loser.

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