The Indian government has always had an uneasy relationship with e-commerce. On the one hand, they would like to attract foreign direct investment (FDI), encourage start-ups, and talk about the digital future, they are also conscious of the opposition from small kirana shops and others who form a significant and vocal voting bloc. As long as there was the fig leaf of e-commerce being dominated by homegrown entrepreneurs who had started and were running Flipkart, the dilemma was bigger as any harsh step they took could be construed as killing a new initiative and stamping down on digital entrepreneurship. And they could hardly have different rules for Amazon than they did for Flipkart. The truth was that the Bansals - Sachin and Binny - had long ceased to be major shareholders of Flipkart and the venture capitalists and other investors were firmly in the saddle. In fact, though the Bansals held the top two positions, the investors had put Kalyan Krishnamurthy as CEO to bring some discipline into what was a free spending, growth at all costs, corporate culture.
After Walmart paid top dollar to take over 77 per cent of Flipkart and took total control, the problem for the government vanished. Meanwhile, RSS affiliates like Swadeshi Jagran Manch (SJM) were also putting enormous pressure on the government for allowing e-commerce companies to do deep discounting and therefore hurting the local, small shop owner. With general elections around the corner, the clamour for protecting the small domestic guy was too insistent to be ignored.
The new pressnote has to be seen in that context. It suddenly puts in significant restrictions - disallowing e-commerce platforms from holding equity in sellers, doing exclusive deals with mobile companies and above all, disallowing private labels and putting restrictions on cashback. No doubt Flipkart and Amazon have turned to their high powered consultants and lawyers to look at the loopholes of the new regulations. And no doubt Walmart and Amazon will use their significant lobbying powers and bring in some pressure from the US government to relax the rules. It could even be possible that these are rules meant specifically to show the small shopkeeper that the government is looking after their interest and may relax them after the elections.
The problem is that while every government has the right to put any regulations they wish to protect homegrown entrepreneurs (and China is the biggest example of that), the commerce minister and the finance minister really need to make up their minds as to what is the way forward for e-commerce and other digital startups. Is it to allow free competition and unlimited FDI as long as reasonable restrictions exist to prevent the customers and vendors from being cheated? Is it to protect home grown talent and prevent global investors from taking over? Or is it just to protect small shop owners and essentially discourage organised retail? The government's policies on e-commerce have never been particularly clear... and the latest one does not bring any clarity about its long term view of the sector either. What it does is scare off foreign investors just when it is also talking about improving ease of doing business and welcoming foreign capital.