New rules may give Mukesh Ambani an edge in domestic e-commerce turf

After shaking up the telecom market, the oil-to-telecom businessman Mukesh Ambani is preparing to overhaul the e-commerce market.

And the ground for it was prepared with the circular issued for foreign direct investment (FDI) in the e-commerce sector. This notification, issued in December last year, has tilted the playing field in favour of domestic players.

With not much clarity on the rules and regulations dictating local players, billionaire Ambani's e-commerce venture would start with an edge, both in terms of financial muscle and policies.

India's richest man is likely to launch his marketplace through Reliance Jio Infocomm Ltd and Reliance Retail.

Praveen Khandelwal, secretary general, Confederation of All India Traders (CAIT), told DNA Money that Ambani should take care that his venture doesn't harm the seven crore small retailers in the country, who employ 45 crore people and contributed 45% of the GDP.

"Mr Ambani is entering the e-commerce space. He should be very careful that his portal shouldn't harm the seven crore small retailers, who provide employment to 45 crore people and contribute 45% to the GDP. If they (large e-commerce players) operate in a very undemocratic manner then there will be a big loss of jobs in the country because, after agriculture, retail trade is the second largest sector which provides employment. We have to be very careful (about that). (Otherwise), anybody is welcome," he said.

Aware of Ambani's oft-used aggressive marketing strategy to intensify competition, just like foreign e-commerce players, Khandelwal wants policy and regulatory restrictions to be imposed on domestic players like it has been done for overseas players like Amazon and Walmart.

"That is why we are impressing upon the government to put restrictions on domestic players as well. Yesterday (Friday) only I have sent a communication with the commerce minister Suresh Prabhu. The letter carries this demand and we have unequivocally demanded that if restrictions are not imposed on domestic players then there is no use of putting restrictions on others (foreign players). There has to be a level playing field and fair competition in the market," he said.

Late last month, the government issued a notification on FDI rules which prohibits foreign e-commerce entities operating as a marketplace to influence the sale prices, directly or indirectly. It only allows vendors to determine the discount.

The press note circular also put a clamp on marketplaces selling inventory of vendors in which it has a direct or indirect stake, through the group companies on it e-commerce portal.

Another rule put out by the government, which will adversely impact overseas players, is one on exclusivity, which mandates marketplaces to ensure that no vendor/merchant sells more than 25% of its products on one platform. This disallows marketplaces to enter into an exclusive pact with any seller.

These new norms that would be effective from the beginning of next month are likely to compel foreign marketplace operators to tweak their existing business model, which could affect their volume of business and profitability.

Since these rules will not apply to domestic players, Ambani's e-commerce venture may have a slight edge over foreign players and could give it a big head-start.

Anil Talreja, partner, Deloitte Haskins & Sells, said the recent notification would require Amazon and Flipkart, in which US' Walmart has a majority stake, to return to the "drawing board" and re-look at their India strategy.

On Ambani's entry, he said retailing through e-commerce was still very small in India and could accommodate more players for it to expand to its full potential. According to him, it constituted just 4-5% of the total retail market.

"In my personal view, there is too much being made out of it (Ambani's entry). I feel the Indian market continues to be very large and everybody should remember the fact that e-commerce segment currently comprises about 4-5% of the total retail market in India, which is insignificant. I don't think anybody will be stepping on anybody else's shoes," he said.

Talreja said with the e-commerce sector expected to grow at 32-34% compounded annual growth rate (CAGR) in the coming years, Reliance Industry Ltd's entry into consumer business is rightly timed and would not negatively impact the sector's profitability or employment.

"We have done some research and this is the number which came out of that. We do recognise the fact the e-commerce space is expected to grow at about 32%-34% CAGR, which is very good. I continue to believe that it (growth) will still happen because as I said the field is open for everybody to play. It's not that some of them are not out there to play in the playground," he said.

The Deloitte retail expert does not believe the new rules have put domestic players on a favourable field; "I don't believe any domestic player is having an advantage over foreign players. Yes, the notification has resulted in foreign players having additional conditions to comply with. It is applicable only to the foreign players".

He alluded currently there was "nothing restrictive for the domestic e-commerce players" and that there should be a policy for domestic players.

"It is always good to have a policy so that people know what is it that they need to follow," he emphasised.