How Reliance shaped the India First agenda in the draft ecommerce policy

Sunny Sen August 7, 2018 10 min

July 30, 3pm: At Udyog Bhawan, one of the cavernous government buildings in Lutyens’ Delhi, close to 70 people – startup entrepreneurs, lobbyists, public affairs executives, representatives of NGOs and consumer protectionist groups, and senior government officials – were meeting to thrash out the minute details of India’s ecommerce policy.

This was the fourth meeting since April 24, at which Suresh Prabhu, India’s minister of commerce and industry, had set the ball rolling on the policy. What was different this time was the active participation of two executives: Shailendra Jha, vice-president of corporate affairs at Reliance Jio, and Akhil Prasad, a corporate affairs executive at Jio’s parent – the Mukesh Ambani-led Reliance Industries, India’s largest company by revenues and, arguably, the most powerful company in the country.

There were Reliance representatives at earlier meetings, to be sure, but what different was how the Reliance executives leaned in at the July 30 meeting. “A law that is not enforced is not a good law. We should look at enforcing the law,” Jha said, according to an internet company executive present at the meeting of the task force.

He was referring to multiple laws that Internet companies in India have skirted around, or even flouted earlier, as they chased scale and growth riding unmet customer demand for their services. More on that later.

Prasad, the corporate affairs executive, made Reliance’s intent very clear during the meeting when he stated India was already late with a consistent ecommerce policy. “This is not about offline or online, digital is for everyone… (the government) has been long on prescription but fallen short of enforcement and execution, which shouldn’t happen,” he told the packed room, according to an ecommerce company executive. The attendees included government officials.

The context for Jha’s and Prasad’s comments and Reliance’s backroom discussions in four of the task force’s nine sub-groups was simple: the growth in Indian internet economy in the decade ahead will dwarf the last 10 years of ecommerce in the country. The valuation of Flipkart at over $20 billion, placing it among the country’s top 20 stocks were it listed, in the recent Walmart acquisition is but a beginning.

There is a trillion-dollar business waiting to be unlocked in the next seven years, the government believes. Or, 20% of India’s gross domestic product. That was rationale enough for a task force – it reports into a think-tank in the industry ministry – that would carefully examine laws for the ‘e’ part of every sector. The Indian digital economy is already pegged at some $125 billion, well on its way to doubling by 2020. This includes everything from phone and data services to online advertisements, from ecommerce to online travel and ticketing.

The data colonies worry

Take a closer look and you will see how Indian companies play a small role in it. Ecommerce is a $38.5 billion industry largely dominated by two players – Amazon and Flipkart (now majority owned by Walmart) – both American. Then there China’s Alibaba, which has mega plans for India. Most Indian ecommerce companies have either perished or have been reduced to insignificance while competing with these foreign biggies. Same with social media and online advertising where giants Google and Facebook vacuum out most of the tidings leaving little for others.

Cut to Jio. It wants to become India’s largest digital conglomerate spanning telecom services, ecommerce of both physical and digital goods, distributing and creating content including movies, delivering education and healthcare, and getting kirana stores online.

“Reliance doesn’t want India to be colonies of American and Chinese companies,” said a senior industry lobby executive, who was present at the meetings, asking his or his employer’s name not be taken because of the sensitive nature of task force’s work. “Its participation in the draft has given Indian entrepreneurs a strong stand against multinationals.” Most of the others interviewed by FactorDaily for this story wanted to stay anonymous, too.

Like others in the ecosystem, Reliance realises the value lies in vertical integration of the business – from telecom access to content to commerce to payments. “The real money is in selling services and goods online – areas, which have a deep penetration of American and Chinese companies,” a senior Jio executive said, on the condition of anonymity.

The speed at which the task force completed its work was unusual. “The turnaround to bring out the policy draft has been quick,” said a CEO who was present at the first meeting. “We thought it would take much longer.”

What was even more surprising is that three companies (Amazon, Flipkart and Uber) were left out of the discussions. “Flipkart officials did come for the first meeting at (New Delhi’s) Pravasi Kendra but that was a few days before the Walmart deal was announced…,” the CEO quoted above said, adding the policy is aimed at safeguarding the interest of Indian companies — which has been dubbed a return to India’s licence raj (paid access) days of the 1970s and 1980s.

The draft ecommerce policy aligns with the ruling Bharatiya Janata Party’s key constituency of traders. “Elections are around the corner… the BJP government needs to be seen as a party who stands for Indian companies,” explained a senior official with the government’s department of industrial policy and promotion (DIPP). He agreed that the draft ecommerce policy, to be put up for public consultation in the coming weeks, might worry multinationals for its data localisation and access proposals. Indeed, going by the scale of some of their operations: Amazon has promised $5 billion investment in India, Netflix is targeting 100 million users in the country, Facebook and Whatsapp count over 200 million users each in India, and Google makes some $1.2 billion here with its firm grip on advertising.

Jio did not respond to a FactorDaily request for comment, neither did Amazon, Google or Facebook comment.

Differential treatment

The ministry of commerce had invited both Reliance Jio and Reliance Industries to be a part of the draft policy. Prasad lobbied for Indian companies well. “If Amazon is not allowed to do a bunch of things, that should not be applicable for Indian companies,” he told the closed room.

The nine sub-groups holed up in Hotel Claridges, a boutique five-star property in central Delhi, for two days last month in discussions that began at 9am and went on beyond dusk. On the agenda was India first: what should go into the draft ecommerce policy that will safeguard interests of Indian entrepreneurs, data privacy, and impact of foreign direct investment.

“They (Reliance) are pretty assertive and aggressive,” said a corporate affairs executive with a large ecommerce company, who was also present in the meetings. “They proposed that data belonging to Indians, generating in India shouldn’t go out.”

The result was quick and fast. The draft specifies that data generated by ecommerce companies and social media should exclusively be stored in India. The corporate affairs executive quoted above, who also had knowledge of Amazon’s plans, said. “Till about four-five months ago Amazon was hopeful that the government will offer a hybrid inventory model. Those hopes have gone tumbling down.”

The so-called hybrid model is a key element in an ecommerce business. It refers to when an ecommerce company holds its own inventory as also allows third-party sellers to sell on its platform. In India, foreign investment is allowed only in ecommerce marketplaces – companies which are not permitted to hold inventory and only allowed to have third-party sellers with the additional condition that no single seller can account for more than 25% sales. Amazon operates under a hybrid model elsewhere globally. According to its latest annual report, more than half of the units sold on Amazon worldwide were from third-party sellers for the first time in 2017.

Most of the rules that Indian ecommerce operate under are found in the DIPP’s Press Note 3, which states that foreign direct investment is not allowed in companies that operate an inventory model. By definition, Indian companies such as Reliance Retail or Future Group, to name just two, can operate as a hybrid, inventory-led or pure-play marketplace company.

There is a small change proposed in the draft policy even though it is presented as strengthening Press Note 3. In order to promote made-in-India products, the government wants to allow marketplaces (where FDI is not over 49% and the company is run by an Indian management) to keep inventory of domestically produced goods.

Otherwise, the draft policy clearly states that a foreign company or its subsidiary will not be allowed to hold inventory. In Amazon’s case, its subsidiary Cloudtail, which is a seller on Amazon, buys inventory and stocks it in Amazon’s warehouses. “They always did bulk buying and distorted the prices… with this rule the extent of violation will go down,” the government official quoted earlier told FactorDaily.

Add to that, the government is looking at introducing a sunset clause for promotional offers, which should not last for the lifetime of a company. “Look at China, the way they have built their startup space. Amazon, Walmart, Uber and every other American company who tried to enter the country failed… In India they are flourishing,” said a consultant, who has both Flipkart and Amazon as his clients. “This policy might hurt them.”

Ramesh Abhishek, DIPP secretary, who attended the July 30 meeting, said that the newly proposed restrictions on marketplaces are there so that the prices don’t get distorted, which will be also made applicable to the group companies of retail businesses, according to a spokesperson of an Indian ecommerce company who was present.

Who steered the draft?

It is not clear to what extent Reliance influenced shaping the draft policy behind closed-door deliberations of the various sub-groups. “It was a joint effort,” said a second Reliance executive. “Our proposals were what we thought would be better for the nation… India opened their doors to companies but now if not acted upon fast, there will be nothing left for Indian companies.”

Anup Wadhawan, special secretary of department of commerce told those who were present at the Udyog Bhawan meeting that what has already happened cannot be reversed – in search, ecommerce and social media – but foreign players shouldn’t be allowed to take away the whole market.

Dhanendra Kumar, the first chairman of the Competition Commission of India, too, was concerned. In his presentation, he detailed how Uber and Grab had colluded to create a monopoly in Singapore through a merger and were levied penalties.

Wadhawan and Kumar’s comments could not be independently confirmed.

Pointing to ride-hailing company Uber and its Indian rival Ola having a common investor in Japanese conglomerate SoftBank, the first Jio executive quoted above said: “This is anti-competitive behaviour. There are already rumours that Uber and Ola might look at a merger in India.”

The next stage in the formulation of the ecommerce policy is when the draft goes into public consultation in a few weeks. Changes, if any, will be made by the ministry of electronics and information technology, DIPP and CCI. It will then be presented to the cabinet for approval.

As far as Indian companies – and, notably, Reliance – are concerned, if the ecommerce draft in its current form gets enshrined as law, Jio will have a huge edge over others. It has its own inventory for ecommerce through Reliance Retail, which is already the country’s largest organised retail chain by revenue. The Jio network offers the fastest data speeds among mobile phone service companies in India; has tie-ups with content, production houses and television channels; and is piloting online education and healthcare services. Merge all of these on one platform, where even kirana stores can plug into and it can be India’s first digital conglomerate.

The draft ecommerce policy is only a step in this direction.


Updated at 01:50 pm on August 7, 2018  to correct a typo.

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