FDI in e-comm: Mayhem continues as Flipkart CEO KK strongly demands an extension in deadline

Department of Industrial Policy and Promotion (DIPP) passed a new diktat regarding FDI in e-commerce in late December 2018, which brought an unprecedented wave of mayhem in the industry.

As the deadline to adhere to the new norms - 1st February 2019 - nears, pressure from both the opposers and the supporters increase on the government.

In the latest set of revelations, Reuters found out the letter sent by Kalyan Krishnamurthy, CEO of Flipkart, to Indian industry department, fiercely demanding a 6-month long extension in the deadline.

In the letter, KK points out two reasons behind his demands. First is the fact that the company has to go around approaching the sellers in order to ensure compliance to the new norms. The company has to analyse all elements of the business and see to the fact that they conform to the rules.

Flipkart claims that the process will take five to six months in the least. The company enumerates that it has 80,000 employees and contractors that move around between 5 lakh to 6 lakh shipments every day. The process of talking to sellers and assuring policy adherence has made the company leave everything aside and only focus on this activity.

This has cost the business tremendously. For one, they have to redesign several technology systems to validate their conformity and present them as evidence in a short time, that adds to the cost. At the same time, shifting focus on these activities has also hurt the GMV of the company.

Emphasizing on this, KK said that the regulations will cause severe customer disruption in case the deadline wasn’t extended. He also believes that the norms will hamper the Indian e-commerce industry’s growth as a whole in the longer run.

The letter by KK to India’s industry department is an unsurprising development, considering that the company was acquired by US retail giant Walmart in a huge $16 billion deal last year.

Walmart along with Amazon has been lobbying US government to create pressure on the Indian government. It calls the new provisions a violation to the bilateral trade policies that could harm the relations between the countries.

Now, it is also trying to create pressure on the Indian government locally via KK to extend the deadline. There is no denying the fact that the new policy severely harms Walmart’s acquisition agenda in Flipkart, and it is leaving no stone unturned in preventing the same.

At the same time, Amazon has raised similar concerns with $5.5 billion invested in the Indian economy, 4 lakh sellers on the platform, and hundreds of thousands of transactions on a daily basis. The company had also sent a letter to the Indian government asking for a four-month delay in extension.

The sail supports of the policy

Simultaneously, the government has received overwhelming support from the smaller e-commerce firms in the country. In another letter, Snapdeal had written to commerce minister Suresh Prabhu lauding the move and strongly opposing any deadline extension.

According to this letter, “some large e-commerce companies” were taking advantage of “glaring loopholes” in the previous e-commerce policy to indulge in unfair market practices. These practices had created such a huge divide in the market, that it was almost impossible for smaller traders and e-comm companies to tackle it.

The fact that the exploitative giants are desperately trying to avoid the compressed deadline, was deemed by Snapdeal to be evidence of the effectiveness of the new policy.

The new policy which was formed after several complaints from the trader’s union, bars these companies from allowing merchants they have invested in to create sales via their platform. It also prohibits contracts that constrict vendors from selling on other platforms, and any vendor to account for more than 25 per cent of the total GMV on one platform.

These norms are set to put a stop the malpractices like vendor exclusivity, overwhelming discounts cashbacks, and loss funding by these dominating giants that had left the e-comm and trade industry bereft of equitable growth.

Which is why, smaller players like Snapdeal, Shopclues, Shop101, Limeroad, Wooplr, Fynd etc had shown full support of the policy, and had also expressed concern over a possible extension in deadline. The new policies give these companies, as well as smaller traders, a chance at fair play in the market.

The government had also received pressure from its child Hindu nationalist group Rashtriya Swayamsevak Sangh (RSS) strongly demanding it to not give in to foreign pressure and move on with the deadline as planned.

Otherwise, they believed, the government would be harming the interest of 130 million Indian SMEs.

Considering the arguments from all the sides, the initial reasons behind the change in policy, and the silence of the government on the issue, it seems unlikely that the deadline will be extended. Rest, the next two days will tell.

The information regarding the letters was sourced from Reuters via Mint and Financial Express.