Antitrust advocates back new e-comm rules, others push for same rules for local firms

Global antitrust practitioners are lauding the new FDI in e-commerce rules, which kicked in last week, and said the new rules will prevent technology companies from forming monopolies in India.

They termed it as a step in the right direction to protect smaller businesses which sell on platforms like Amazon. However, some felt that the rules should not be restricted only to companies with foreign ownership, but be applicable to domestic players as well to prevent it from benefitting a select few companies.

Enforcing the new regulations only for firms that have foreign ownerships or investments could create a non-level playing field in India’s burgeoning e-commerce sector, they said.

In a post on Twitter, Lina Khan, an antitrust law and competition policy researcher, known for being a vocal critic of the business practices of Amazon, said India’s rule responded to a problem sellers on Amazon routinely face where, “Amazon will spot their best-selling products and then produce an Amazon-branded version, demoting them in search listings and eating into their sales”.

Khan argued that while for some the rule was akin to protectionism, it was more of a structural separation, a method used by US lawmakers in the past to ensure media diversity, dispersion of power or system stability. “The idea is you can either run the marketplace or sell your goods on the marketplace, but not both,” Khan tweeted.

Vivek Wadhwa, a technology entrepreneur, agreed with Khan and said: “the US needs to learn from India and prevent predatory tech monopolists from destroying entire industries”.

Unlike the US, the European Union has been at the forefront of enforcing an antitrust framework for technology companies like Google and Amazon to curb their monopolies. In September last year, EU’s competition commissioner Margrethe Vestager had announced an investigation into whether Amazon was unfairly using data it gathered from third-party sellers on its platform and creating its own products to sell.

Read: Silicon Valley’s EU nemesis Margrethe Vestager lays groundwork for more tech scrutiny

Others chimed in to Khan’s tweets, including some prominent figures from India’s new-economy sector. Rehan Yar Khan, managing partner at Orios Venture Partners, and an early-stage backer of Indian internet firms such as ride-hailing firm Ola and software product startup Druva, said: “The rule only applies to companies that have received foreign investment to clip their wings so that domestic players can steal market share”.

Soon after the government clarification on Press Note 2 of FDI in e-commerce, many in the startup ecosystem argued that the new rules favoured domestic players and ignored aspects which were actually benefiting consumers.

“It’s not the policy makers job to dictate how businesses are run if they are benefiting customers. In this instance, framing rules only for foreign companies is even worse as they appear to be designed to benefit only a few. I have read that the PMO is considering to apply these rules to domestic companies as well which would at least make it a level-playing field, though personally I think this whole step is retrograde,” said Avnish Bajaj, founder at Matrix Partners, a venture capital fund.

Haresh Chawla, a partner at private equity fund, True North, said it was Amazon and Flipkart’s efforts to keep finding loopholes in the law that forced the government to finally step in.

“The argument that there has been a flip-flop in India’s laws is wrong. There was already a law stating that inventory-based marketplaces are not allowed in India. But I do think that in a situation where rules are being applied after a sector has been opened up, domestic and international marketplaces should have the same rules. And that’s a lacuna that the government may consider fixing,” added Chawla.

“If the government is providing clarifications regarding how best to interpret existing regulations, it is a bit late. Amazon and Flipkart/Walmart have already established a business model and have been functioning with that model for years now. Such a clarification should have been issued years ago when those business models were still being formed. At this stage in India’s e-commerce market, radical reinterpretation is not ideal. And if it had to be done, the timeline should have been more reasonable. Overall, I am afraid that this was not well implemented,” said Kartik Hosanagar, Professor of Technology and Digital Business, The Wharton School of the University of Pennsylvania.

“The US government has been letting tech companies get away with murder when it comes to anti-competitive practices such as building monopolies by quashing competition. And they have been allowed to perform surveillance on us and violate our privacy and rights. India has done the right thing by limiting the ability of Amazon to use the monopolistic techniques it did in the US to amass power and put smaller retailers out of business. India doesn’t need Amazon to build its own digital infrastructure. It can do this better itself” added Wadhwa, who is also a distinguished Fellow and professor at Carnegie Mellon University Engineering, Silicon Valley.