Dousing The Amazon Fires And Saving The Indian E-Commerce Rainforest

The way forward from India’s present convoluted, ineffective, and discriminatory regime on e-commerce. By Vedika Mittal Kumar.

<div class="paragraphs"><p>Boxes  at the Amazon fulfillment center in Bengaluru. (Photographer: Ruhani Kaur/Bloomberg)</p></div>
Boxes at the Amazon fulfillment center in Bengaluru. (Photographer: Ruhani Kaur/Bloomberg)

The Competition Commission of India recently slapped a Rs 200 crore penalty on Amazon – undoubtedly one of the most popular e-commerce platforms in India. In addition to the penalty, the CCI also suspended its approval to an investment made by NV Investment Holdings LLC in November 2019 in Future Coupons Pvt., the parent of Future Retail Limited – owner of Big Bazaar and one of the largest offline retail companies in India.

This case along with an arbitration dispute between the parties has been getting uglier by the day with corporate mudslinging and proxy wars embroiling regulators such as the CCI, investigating agencies such as Enforcement Directorate and multiple courts up to the Supreme Court of India. Adding to Amazon’s legal woes, third-party stakeholders such as the Confederation of All India Traders have also jumped in with their own writ petitions.

It is safe to assume that Amazon, being the global behemoth that it is, will not be one to resign to its dim legal fate in India. It is sure to draw significant attention to India’s patchy track record as a foreign investment destination given the failure of courts in India to enforce the arbitral award secured by Amazon against Future Group and the CCI suspending an approval granted over two years back.

Apart from the specific case of Amazon, another chink in India’s foreign investment armour is the foreign direct investment policy which selectively imposes restrictions on foreign-funded e-commerce companies whilst ostensibly allowing Indian e-commerce companies to commit unfair practices such as self-preferencing and deep discounting.

Sporadic attempts by the government to streamline e-commerce regulation either in the form of the Draft E-Commerce Policy or the Consumer Protection (E-Commerce) Rules have been inadequate and misdirected, respectively.

Regulatory Muddle

As things stand today, neither does India’s e-commerce regulatory landscape follow a laissez-faire approach like the United States—albeit the U.S. is attempting some course correction itself—nor is it daunting enough like China for e-commerce giants to succumb without protest.

India’s regulatory framework for e-commerce is at a place where we generally always find ourselves – in the middle... of nowhere. With just enough lack of regulatory clarity to be an attractive market for e-commerce giants, while managing to appease domestic stakeholders ranging from small-time traders to large Indian conglomerates.

So if everyone seems to be doing just fine, what is the problem anyway?

The most obvious problem is that India is losing focus as well as precious time to actually find a sustainable regulatory framework to govern e-commerce in what could potentially emerge as the largest e-commerce market in the world.

The success and innovation that India churned with its digital payments framework are unlikely to be repeated for the broader e-commerce ecosystem unless serious political will to do so emerges. Sooner or later the party will end, and consumers will demand action. One can only hope that markets have not irreversibly tipped by then leaving consumers at the fate of an all-powerful surviving e-commerce giant – never mind Indian or foreign.

Lastly, no one seems to be bothered by the long-winding, and unnecessary legal battles being fought by the army of lawyers appointed by e-commerce giants.

Wastage of judicial and regulatory time and resources is a foregone battle, one that we have internalised as a sunk cost both as a country and as a private entity doing business in India.
Future Group, Reliance Retail, Amazon: The Maze Of Litigation Explained

Global Regulatory Moves

Shifting the lens away from India, admittedly no country has found a foolproof regulatory strategy to balance innovation and accountability of e-commerce giants, but serious efforts to devise regulatory solutions are underway in almost every jurisdiction with a respectable e-commerce presence.

While the European Union is considering the Digital Markets Act Package, in the United Kingdom the Digital Markets Taskforce and the Furman Committee have proposed a framework of their own. Even the U.S., which is home to some of the most powerful e-commerce giants, has set in motion legislative attempts to regulate Big Tech after the scathing report of the House Judiciary Committee. Thus far, Germany has emerged as the torchbearer of regulatory scrutiny of Big Tech, having adopted legislative reforms aimed at increasing accountability and fairness in digital markets.

Importantly, there has been no major negative repercussion such as the exit of a major e-commerce giant from German markets post its adoption of regulatory reforms.

India is no exception and meaningful reforms to our e-commerce regulatory landscape will be required sooner rather than later. This will not only do good to consumers and the country but will also augur well for e-commerce platforms themselves as a stable regulatory framework will foster predictability and certainty.

The Way Forward

The Vidhi Centre for Legal Policy, a leading think tank, has recently published its recommendations on building fair and competitive e-marketplaces in India. They present a two-step solution as the way forward for regulating e-commerce in India. While step one is to build capacity and use existing legal tools such as the Competition Act effectively, step two argues in favour of adopting new ex-ante regulatory tools to set the rules of the game for e-commerce in India.

Undoubtedly, it would be counterproductive to subject all e-commerce platforms to new regulation when incumbent giants have already amassed significant market power with almost no regulatory enforcement thus far. Therefore, the strategy must be to identify the largest e-commerce platforms and subject them to regulation.

Fears of driving away foreign investment or seeming arbitrary by applying regulation selectively are unfounded for two reasons:

  1. Selectively regulating only the largest digital platforms has emerged as the most popular approach internationally, and therefore India will not be an outlier in adopting this approach.

  2. Presently the FDI policy imposes restrictions only on foreign-funded e-marketplaces which makes the legal regime in India seem highly nationalistic without really achieving any concrete results for domestic e-commerce platforms.

Adopting objective criteria such as the number of active users or total sales volume for applicability of any new regulation will be fair and appear to be so as well. It will certainly be a step forward from the present regime, which is convoluted, ineffective, and discriminatory.

Vedika Mittal Kumar is Senior Resident Fellow at the Vidhi Centre for Legal Policy. Views are personal.

The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.