There is trouble in paradise. The government's drastic intervention in e-commerce at the behest of vested domestic interests and the powerful traders lobby has created consternation in the bulge bracket world of e-commerce in India.
With the big players having reached out to the Government to give them breathing space on the new compliance measures beyond the January 31 deadline, the Industry ministry has not responded, leading to panic attacks across the board.
Powerful stakeholders led by Walmart and Amazon from the e-commerce eco system have sought a six-month extension since lakhs of sellers - small and medium-sized - in the market place need to be educated, IT-enabled and connected to meet the statutory audit requirements. Moreover, contracts have to be re-negotiated so that the compliance measures remain ongoing with time being of the essence.
It is believed that the DIPP or Industry Secretary Ramesh Abhishek, who was earlier encouraging the major players to ramp up their investments in India, has not responded to their pleas and petitions.
The situation has become precarious primarily because the clarification to press note 2 was even more confusing. On a granular level, the market place cannot have any equity in the seller.
Hence, Amazon which has five percent equity in Shoppers Stop has to comply with the new standards. The new government directive does not allow private labels, nor does it allow big brands to have commercial tie-ups with the market place. Basically, the rules of engagement have been turned on their head.
Bain Capital reckons that the heavy lifting e-com players have generated three lakh jobs in India. Over and above this, there are lakhs of vendors.
Further, the eco system has multiple spin-offs like advertisements, courier companies, logistics companies, supports innumerable manufacturing operations and caters to large scale supply chains. Flipkart has 80,000 employees, 80 fulfilment centres (warehouses), nearly one lakh plus sellers and artisans of all hues across the land. Ditto for Amazon, which has similar numbers across its business spectrum.
Walmart paid $14 billion for Flipkart stock with a promise of an additional $2 billion in physical structure investment. So, there is a lot riding on these heavy lifters for both know that this is the last frontier in terms of a consumption market, since India consumes 67 per cent of its own $2.6 trillion GDP. Interestingly, Walmart runs Flipkart as a stand-alone entity.
For Walmart this is a priority market and it is keen that the January 31 compliance window deadline is extended. Its commitment to the Indian market can be gauged from the fact that it recently got 100 acres in Bengal for warehousing as a pivot to the northeast market. Hence the size of the commitment is seeing enlargement almost daily.
It is on the verge of closing another 100 acre fulfilment centre in Telengana to service the southern market. Remarkably, the Indian retail market is estimated to be $650 billion, of which 90 percent is the kirana stores while nearly eight per cent is made up of Indian retail players and only two percent is e-commerce. However, since the biggies in e-com are global behemoths, impediments are being placed in their path.
At the kernel of the government notification and clarificatory statement is the targeting of e-commerce giants who are quick to retort that they helping small sellers with a channel that is tech-enabled to put their products on the marketplace.
At the time same time, even as they try and get the government to listen to their litany of woes on immediate compliance, the process of evaluation of sellers will continue and remain ongoing so that they are effectively compliant every single day. The government's intervention is perceived to be through a non-consultative process and the global giants want more time for compliance and enhanced level of dialogue.
The audit requirement on the sellers by opening their books to the marketplace in such a short time is reminiscent of the haste in the launch of GST, which threw small businesses out of gear.
Many of the sellers will now have design IT systems and the marketplace cannot be liable for this. In parallel, there is no clarification on how to conduct the private label business.