Levelling the playing field for online
Mains Paper 1: Economy
Prelims level: FDI
Mains level: Economic growth and development
- Tighter rules governing e-commerce platforms notified by the
government this week are designed to level the playing field for all vendors
in an online marketplace.
- These impose restrictions on related-party transactions,
preferential treatment to suppliers, and inventory dumping.
- Background of the announcement
- The government had announced the foreign direct investment (FDI)
policy for the sector in 2016, during which US retail giants Amazon and
Walmart came to occupy a commanding position in India’s $41-billion
- Indian brick-and-mortar retailers have grown restive, claiming
online marketplaces like Amazon and Flipkart have acquired the power to
influence retail prices, in contravention of the policy that restricts FDI
in business-to-consumer (B2C) e-commerce, but not in business-to-business
- The government appears to have bought this argument and the new
set of rules are meant to give effect to the original e-commerce policy even
as inter-ministerial consultations are on for drawing up a new one.
Battle for online marketplace
- India is a crucial battleground for Amazon and Walmart they have
committed a combined $21 billion to this market and they may now have to
review their business operations in the country.
- Amazon has several joint ventures, including Cloudtail and Appario,
that may be affected by the restrictions on sales by related parties.
- Flipkart has exclusive partnerships with smartphone brands like
Xiaomi and Oppo that could, in turn, face a ban on exclusive deals for
- Both offer promotional schemes such as cashbacks and faster
delivery, which are now deemed discriminatory.
- The companies will now have to furnish reports to the Reserve Bank
of India annually, adding another dimension to compliance and monitoring of
the e-commerce industry.
- Flipkart and Amazon can thus be reasonably expected to push back
against rules they find too constrictive, given the size of their
investments in the ecosystem that fuels e-commerce on this scale.
- The government, on its part, is clear that the new rules are
needed to prevent anti-competitive behaviour in the e-commerce industry.
- An online marketplaces should not have any role in determining the
prices of the products sold on their platforms.
- As regulator, it cannot avert its gaze from market distortions,
even if the latest rules do not fit snugly into the country’s competition
law, which proscribes only a select segment of exclusive arrangements that
have a demonstrably significant effect on market freedom.
- The focus should be on establishing specific arrangements that
create barriers to new entrants.
- The extra load on auditors is, however, a small price to pay in
the larger interest of transforming India’s retail sector into a modern
- E-commerce provides India’s army of medium and small enterprises
one of their least-cost options to sell their wares, and the government’s
approach of encouraging online marketplaces with due safeguards cannot be
- But the regulatory reflex must be tempered by the realization that
a ramshackle retail sector is not in the interests of consumers or
Q.1) Which among the following were part ofmeasures taken under the New
Economic Policy, 1991?
1. Industrial delicensing
2. Disinvestment in Public sector units
3. Complete Capital account convertibility
4. Foreign Exchange Regulation Act (FERA) replaced by Foreign Exchange
Management Act (FEMA)
Select the correct answer using the code given below.
(a) 1, 2 and 3 only
(b) 1, 2 and 4 only
(c) 3 and 4 only
(d) 1, 2, 3 and 4
Q.1)What do you mean by the anti-competitive behavior? What are the steps needed
to prevent this kind of activities?