India's e-commerce industry has got Amazon, Walmart, and Facebook betting on it – but it won't be an easy ride

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  • Indian e-commerce is set to be worth $99 billion by 2024, according to a Goldman Sachs report.
  • From Amazon to Walmart to now Facebook and Google, through Reliance Jio are all betting on India being their next big online consumer market.
  • But with the Indian government regulating the sector with the Consumer Protection Act and the much awaited e-commerce policy, the likes of Amazon and Flipkart will be subject to more scrutiny than ever.
All eyes are on the Indian online retail industry, which is set to be worth $99 billion by 2024, according to a Goldman Sachs report. The report also said that over the next four years, the penetration of e-commerce in India is also set to double to 11% from 5% currently.

And this promise of immense growth in retail that has brought the bigwigs to the Indian e-commerce sector. But with the Indian government regulating the sector with the Consumer Protection Act and the much awaited e-commerce policy, the likes of Amazon and Flipkart will be subject to more scrutiny than ever.

Betting on Indian e-commerce

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From Amazon to Walmart and now Facebook and Google, through Reliance Jio are all betting on India being their next big online consumer market.

Walmart has invested $1.2 billion in Flipkart in an equity round, two years after it bought a 77% stake in the Indian retail giant for $16 billion. Walmart’s investment came just days after Amazon invested ₹2300 crore or $305 million into its Indian arm, following Jeff Bezos’ $1 billion investment promise to India. Earlier this year, Amazon had also signed a long-term business agreement with Kishore Biyani’s Future Group.

Meanwhile, Facebook’s $5.7 billion investment and Google’s $4.5 billion bet on Reliance Jio come at a time when Reliance chairperson Mukesh Ambani is betting on retail as the next big venture. One of the most significant factors of the Facebook-Jio deal was that Reliance Retail and WhatsApp are now in a commercial partnership to accelerate JioMart’s growth. Through JioMart and WhatsApp, the entities will now help support consumer businesses.

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But it could be a bumpy ride

All the attention on Indian e-commerce hasn’t gone unnoticed by the Indian government. For over a year now, the Modi government has been toying with the idea of an e-commerce policy, and drafts of it have already been shared with the e-commerce players in India. The policy aims to regulate the booming e-commerce sector and also keep an eye on the role of foreign players.

The recently introduced Consumer Protection Act also has new regulations for the Indian e-commerce sector. The new rules aim to bring transparency into the sector and also make it consumer-friendly. According to the new rules, e-commerce players have to clearly state the prices of goods and services along with a breakdown of other charges, mention expiry date of products, country of origin of products. They also have to ensure that they aren’t selling a product with incorrect claims or advertising, among other things.

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The latest e-commerce rules also hold the platforms more accountable for the consumer complaints registered. According to the CPA, e-commerce companies will have to acknowledge a complaint within 48 hours and respond to it within a month.

Since April 2020, global e-commerce operators in India are already subject to the ‘equalization levy’. Through the latest provision introduced in the Finance Act 2020, revenues generated by non-resident e-commerce operators from Indian customers will attract Equalization Levy (“EL 2.0”) of 2%.

India’s draft e-commerce policy too spelled trouble for Flipkart, Amazon. As per the draft, FDI in e-commerce will only be allowed for the marketplace model and not for inventory-based selling. This means that Flipkart and Amazon, will not be allowed to own or sell through any of their entities. According to the draft, Amazon, Facebook, YouTube will all be subject to periodic audits for their use of personal data of Indians.

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While Facebook has an investment through Reliance Jio, the noose tightens around other e-commerce companies; and will have a direct impact on the likes of Amazon and Walmart-owned Flipkart which together hold the majority share (almost 60%) of the market.

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