India’s e-commerce policy likely to take a back seat amid sluggish FDI inflows

India’s e-commerce policy, in the works since 2018, could face further delays as the government seeks to maintain the status quo with major players in the sector such as Walmart-owned Flipkart and Amazon, at a time when net foreign direct investment inflows have slowed, people close to the events said.

The sources also said that at a review meeting attended by top officials last week, it was unofficially decided that the policy was not a priority to be worked on.

The Ministry of Commerce did not respond to a request for comment on the incident.

When the first draft of the e-commerce policy was published in February 2019, it was considered to be too difficult to implement because it touched on many areas of the internet, such as data regulation, antitrust measures, intellectual property and consumer protection.

After industry representatives pointed out issues with the project, the Ministry of Commerce and the Department for Promotion of Industry and Internal Trade (DPIIT) revived the project.

“Nobody in the industry has seen a complete, revised draft since then. At a meeting of industry leaders last year, they presented a slide with five points that talked about the broad goals of the policy, such as that e-commerce companies should do right by consumers,” said a senior e-commerce company executive.

According to him, the government may have recently realised that the e-commerce sector is an integral part of its plan to increase the number of formal sector jobs in the country.

“Currently, the sector is estimated to employ around 2 million workers who are paid between Rs 15,000 and Rs 20,000 per month. It will not be easy to replace them… Also, the existing players may continue to tolerate tough politics as they are already deeply involved in the country. However, a political environment that is constantly changing is not a good idea when you are trying to attract foreign investment,” he added.

India’s $60 billion e-commerce sector is currently dominated by Flipkart and Amazon, which together control more than 80 percent of the market share, according to a report by brokerage firm AllianceBernstein earlier this year.

Walmart is estimated to have spent more than $24 billion on Flipkart and its fintech arm PhonePe since 2018 when it acquired the Indian e-commerce unicorn, while Amazon has said its investments in its e-commerce and cloud businesses in India will total $30 billion by 2030.

FDI coefficient

The latest data from the Department for Promotion of Industry and Internal Trade (DPIIT) revealed that net foreign direct investment (FDI) inflows into India declined by 3.5 per cent year-on-year in fiscal 2024 to $44.42 billion, a five-year low.

The last time net FDI inflows into India were lower than the previous fiscal year was in fiscal 2019, when they stood at $44.37 billion.

Moreover, DPIIT secretary Rajesh Kumar Singh, in an interview to Moneycontrol in April, attributed the decline in FDI inflows to geopolitical instability and high inflation in some developed markets, coupled with higher interest rates.

Singh added that the government is targeting foreign direct investment (FDI) inflows of close to $100 billion over the next five years and intends to further liberalise the FDI policy.

With such an ambitious goal in mind, the government is apparently prioritizing consolidating foreign direct investment (FDI) inflows over implementing regulatory changes in the e-commerce sector for now.

Controversial provisions

As reports continue to emerge that the new bill could curb private label sales on e-commerce platforms, at least two domestic majors have reportedly expressed strong opposition to it from the government.

Another likely provision that has irked the industry, especially large foreign players, could be a ban on e-commerce companies providing related services such as logistics and payments.

“The basic premise of a large e-commerce platform is that economies of scale allow them to bundle different services. You can’t wake up one day and hit the nail on the head with a billion dollars invested in your entire business model,” said a former e-commerce unicorn executive.

Meanwhile, several branches of government have begun working on separate laws and guidelines in areas such as data protection, payments and digital competition. Industry insiders say this could be a compelling reason for the Ministry of Commerce and DPIIT to step back and reassess the scope of the e-commerce policy, leaving aside their differences on its purpose.

Last year, Rohit Kumar Singh, then secretary of consumer affairs, had told Moneycontrol that his department wanted to protect the interests of consumers, while the aim of DPIIT was to promote e-commerce. He said that this contributed to the delay, besides holding 80 meetings with various stakeholders in the e-commerce ecosystem.

The primary factor that prompted the government to introduce the e-commerce policy was to protect the domestic industry and small sellers from the duopoly of Amazon and Flipkart in e-commerce.

However, a senior industry official said the government’s response to most of the complaints from retailers is now to join the Open Network for Digital Commerce (ONDC).

“For a long time, small vendors used to complain about everything else. Now, the government’s standard response is ‘ONDC bana toh diya’ whenever vendors raise any issue. The government believes that ONDC is as neutral a path for their growth as possible,” he said.