Anti-trust and E-commerce: Impact of the 2018 FDI Policy Review

[Anand Nandakumar is a final year BA LLB (Hons.) student at the National University of Advanced Legal Studies, Kochi]

On May 31 2019, the US President signed the Presidential Proclamation that would terminate India from the list of beneficiary developing countries to the US Generalized System of Preferences (GSP).  The Proclamation states that the termination was a result of India’s failure to “provide equitable and reasonable access to its markets.” Though the Indian Government claims that the termination will only have a “minimal and moderate impact”, the termination is touted to cause huge implications on India’s export competitiveness.   

The dispute commenced when the Ministry of Commerce and Industry, Government of India published on 26 December 2018 a “Review of policy on Foreign Direct Investment (FDI) in e-commerce”. A new addition to the FDI policy which prohibits ‘any entity having equity participation by e-commerce market place or its group of companies or having control on its inventory by e-commerce marketplace entity or its group companies’ from selling its products on the platform run by such marketplace entity is estimated to affect roughly $5 billion investment by Amazon and $16 billion by Walmart in India.

This amendment to the FDI policy, according to the author, may lead to adverse consequences. India is not only sabotaging its export benefits with the US but also opening up to greater e-commerce related anti-trust issues in the future. To understand why, it is necessary to examine the events from November 2018.

Anti-trust and e-commerce

The All India Online Vendors Association (AIOVA), in a complaint before the Competition Commission of India (CCI) in 2018, alleged that Flipkart, one of India’s biggest e-commerce marketplace entities, was providing preferential treatment to certain sellers which was prejudicially affecting other sellers on the platform. Every seller using the e-commerce platform is contractually obliged to pay certain charges including platform fees, pick-up fees, return charges, etc. This makes their products approximately 20% more expensive than the sale price. Flipkart India Private Limited is a wholesaler which sells their products to WS Retail Services Private Limited, which is the largest seller on, at a discounted rate.[1] WS Retail on the other hand is hence, together with discounts in platform fees, capable of selling their products on the e-commerce platform at lower rates compared to other sellers. Since, a seller’s visibility on the platform and classification as an “assured” product are dependent on the volume of sales they make (which is directly dependent on the price at which they sell), smaller sellers find it unfeasible to sell on such online platforms directly. This forces them to sell their products directly to WS Retail which charges lesser commission compared to direct sales on the online platform.

The CCI rejected the petition on the grounds that the complainant failed to prove that Flipkart Internet Private Limited enjoyed a dominant position in the relevant market, “services provided by online marketplace platforms.” The decision by CCI was rather impetuous in addressing the issue. Firstly, having already recognised anti-competitive practices by e-commerce platforms, the approach of the CCI was to evade the issue rather than to pounce upon the opportunity to address it. Secondly, rather than rejecting the complainant’s contention that Flipkart enjoys 40% market share due to lack of evidentiary backing, the CCI should have ordered an inquiry by the Director General considering how the complainants had already established a prima facie case. Thirdly, the arguments raised by Flipkart Internet Private Limited to disprove the existence of any entry barriers is fundamentally flawed.

Issues with the new FDI policy amendment and solution       

The preferential treatment provided to certain sellers by e-commerce marketplace entities has been in doubt even prior to the FDI Policy review in Dec 2018. The FDI Policy Circular of 2017 issued by the Department of Industrial Policy and Promotion (DIPP) mandates that all e-commerce entities shall ensure that they refrain from directly or indirectly influencing the price of sale of goods or services and is also bound to ensure a level playing field. Hitherto, such e-commerce platforms have not been held liable for the violation is purely because of administrative lapses. To the Enforcement Directorate, the issue is one pertaining to competition law and for the CCI it is one pertaining to the FDI Policy. The FDI Policy Review of 2018 brings in issues which should ideally be dealt with by the competition law regime. The issue here is that it pertains only to ‘foreign’ e-commerce marketplace entities. Though it is true that foreign entities (including Amazon and Flipkart) dominate the e-commerce market today, the possibility of an Indian entrant into the market was not one to be ignored.

The possible alternative would have been to incorporate the specific obligation under the FDI Policy into the Competition Act, 2002. The Act may thus be amended to incorporate the following provision:

Section 4A. Most Favoured Seller

(a) No e-commerce entity providing marketplace shall directly or indirectly influence the sale of price of goods or services sold on the marketplace.

(b) No seller using an e-commerce entity as a marketplace shall receive more favourable treatment than any other seller using the same e-commerce entity as a marketplace.”

The provision would ensure that e-commerce marketplace entities are not unduly discriminated. The uniform treatment for domestic as well as foreign entities would ensure that US cannot raise an objection of targeted discrimination. India could thus not only counter anti-trust issues pertaining to e-commerce but also keep its benefits under the GSP policy.

– Anand Nandakumar

[1] A similar scheme is followed by Amazon through their preferred sellers Cloudtail and Appario Retail.

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