ASG India Advocacy Update: Engaging on E-commerce
In this series we highlight key developments in sectors where we believe there is significant opportunity for businesses to emphasize their objectives and share their views with the government.
The e-commerce sector in India has grown by 34 percent since 2009 to reach $16.4 billion in 2014, and it is expected to cross the $30 billion mark by 2020. This tremendous opportunity is being driven by a growing middle class and young population. Today, India already has over 300 million internet users, second only to China.
On May 14, the Indian government initiated consultations with online retailers and industry groups to discuss foreign direct investment (FDI) in e-commerce. A range of issues related to the regulation of the nascent but growing sector were discussed, including the definition of e-commerce, how to create a level playing field between e-commerce and brick-and-mortar companies, taxation, and domestic trade policy.
After the meeting, the Minister of Commerce, Nirmala Sitharaman, stated: “It was the first meeting… We are not taking any position this way or that way from the Ministry. In fact, this is not going to be sufficient. I would need more meetings with everyone – individual operators or associations. It is for us to understand the broader context of e-commerce.”
The Department of Industrial Policy and Promotion is reportedly drafting guidelines for the sector, and is particularly focused on addressing the ongoing tussle between brick-and-mortar companies and online companies.
In the context of its trade and investment discussions, India is also negotiating approaches to liberalizing the e-commerce sector. India has agreed to have a separate e-commerce chapter in its Comprehensive Economic Cooperation Agreement (CECA) with Singapore, while, at the same time, Japan is purported to have included e-commerce liberalization in the Regional Comprehensive Economic Partnership (RCEP). Domestic e-commerce firms like Flipkart and Snapdeal have reportedly expressed opposition to any decision to liberalize the sector.
Why these developments are important
The Minister’s statement should be interpreted as an invitation for e-commerce companies to engage with the government. This call for engagement is a significant departure from the previous administration and should be viewed in a positive light.
The request for input and possibly consultations demonstrates a recognition of the regulatory challenges and policy ambiguity that threaten to impede the growth of e-commerce in India. Currently, India does not allow FDI in the business-to-consumer (B2C) e-commerce space, forcing companies to circumvent this barrier through a marketplace model. This has major tax implications because the ultimate responsibility for tax liability is unclear.
Opportunity for business
It is crucial for the industry to take advantage of the window of engagement that the government has presented to highlight issues and recommendations. Both individually and collectively, companies will have to understand the stakeholder universe, craft their message, and engage stakeholders in a strategic and sustained manner.
The stakeholder universe is wide and yet to be explored. At the central government level, the Ministry of Commerce and Industry, which houses the Department of Industrial Policy and Promotion (DIPP), is the most important constituent. Other ministries that will be instrumental in policy formulation for the sector include the Prime Minister’s Office, which has assumed a central role in the new government’s decision-making; the Ministry of Communications & Information Technology; the Ministry of Consumer Affairs; and the Ministry of Finance.
At the state level, the Minister of Commerce has already indicated that she intends to meet with various state governments, and therefore, the Chief Ministers will also be key influencers. The Reserve Bank of India (RBI) will also be a strong voice, as it has stated that the e-commerce sector could contribute significantly to state revenues. Thus, industry has the opportunity to engage not only with the Modi government, but also with various other institutions at the national and subnational level.
The e-commerce sector in India, like the broader economy, is poised for the possibility of unprecedented growth. Private sector engagement with the government is the first step towards unlocking its potential.