Growth, Promise, and Peril: E-Commerce in India

As India surges to global prominence in ensuing decades, its citizens will transcend low-income status to become securely positioned within mankind’s emergent middle class. India’s awakening will conjure tectonic shifts in global supply chains, production, metadata, commerce, demand, and beyond. Its vast population and newfound wealth will be a crown jewel market, enticing international businesses to consolidate operations in the South Asian giant. Already, we’ve witnessed Microsoft, Google, and Coca-Cola commit to long-term, strategic investments in India to augment their bottom lines. 

Evolving alongside India’s journey to affluence is the tenor in which business is conducted. Online retailing and e-commerce have been disrupting traditional modes of business for years now, but in future decades, their relevance promises to thoroughly transform the character of commerce. Investing in cloud-based services, data storage, and other technological capabilities are sage financial decisions which reflect the underlying trends reshaping our reality.

Merging these parallel developments together brings us to a matter of consequential import: India’s e-commerce and data localization policies. India is at the precipice of an e-commerce renaissance as current forecasts envisage an $84 billion market by 2021 – a 3.5 fold increase from 2017. But within the past year, Prime Minister Modi has implemented a variety of e-commerce regulations targeted at multinational corporations functioning in India. These new rules, anti-competitive in nature, have forced companies to withdraw products from the market, reconfigure data storage infrastructure, and relinquish vital momentum steering their business in India. Companies looking to capitalize on India’s emerging markets have become marginalized, yet, they remain committed to its untapped potential. Amid sinking growth rates, India must soften its regulatory posture to stimulate heightened growth, particularly from foreign investment, to realize its ambitious goal of becoming a $5 trillion economy within five years. 

In late 2018, PM Modi’s government reacted swiftly to domestic concerns from small and medium-sized businesses concerned about shrinking market share. With an election immediately around the corner, the Prime Minister acquiesced to their demands by imposing sizeable hurdles on foreign multinational companies. The policy, “effectively banned Amazon and its local competitor, Flipkart, from selling products of companies in which they have an equity stake” while entirely disbanding with economic agreements made between e-commerce companies and wholesale providers. These contracts, written between private actors, enabled e-commerce ventures to sell products competitively because they opted to purchase in bulk quantities from wholesalers. In doing so, e-commerce companies uncovered an economic holy grail: reducing per-unit input cost slashes the final price. 

Ultimately, this nuanced technique aided the plight of foreign firms navigating the intricacies of the Indian economy by boosting their respective market shares. While domestic producers perceived this to be an unjust incursion on their business, truthfully, the practice was an economic boon for India. The purchasing power of everyday consumers was strengthened because healthy competition facilitated lower prices, elevating the standard of living for rural and urban families alike. 

India’s pursuit for restrictive e-commerce policy was borne from the standpoint that its economic sovereignty was being impeded. To counterbalance perceived encroachments, PM Modi’s government weakened the standing of foreign companies, disregarding the enhanced efficiency they brought to bear. In lieu of reactionary policy, PM Modi’s 2.0 government could chart a reformed and visionary policy response. 

India undoubtedly benefits from lower domestic prices wrought by industrial innovation. Rather than sidelining a proven model, the government could embolden domestic industry by pioneering wholesaler-to-business relationships that expedite product delivery, reduce overhead, and minimize costs. En masse, small businesses could procure inputs at costs resembling those of multinational competitors and generate output at substantially lower per-unit prices. This would require many small businesses amalgamated together to create a wholesale demand similar to a multinational company for economies of scale to be achieved by the many and small. 

Delivering these inputs to the various buyers can be improved with corresponding investments in transportation infrastructure. Policy implementation at this scale could require years until completion. Nevertheless, employing this strategic framework is proof that bold, groundbreaking alternatives to inappropriate and self-harming regulation exist. 

Against the backdrop of e-commerce regulations taking full force, India unveiled fresh parameters on data usage. Data localization, the act of retaining digitized information within one’s own country, is a common practice across the globe. Russia and China have unambiguously strong data localization ordinances, and EU nations likewise impose significant barriers to data transfers across countries. India, following in the same spirit, aims to solidify data localization domestically. 

A primary reason for pursuing this policy objective was succinctly articulated by Mukesh Ambani, the richest man in India: “India’s data must be controlled and owned by Indian people and not by corporates, especially global corporations.” The same strand of strategic autonomy pulsating through much of India’s foreign policy since independence permeates within domestic policy debates even today.

Giving further impetus for data localization is India’s desire to replicate the Chinese model of cultivating domestic industry, so India too may be a commanding force geopolitically. Beyond Reliance Industries, India has a feeble footing in the international political economy scene. 

The government’s directive allotted three years to foreign companies for developing the data storage capacity within India to conform to the regulation’s stipulations. However, American companies protested vehemently to the regulatory parameters because most have little existing data infrastructure in India. Compliance would require heavy sacrifices in otherwise needless groundwork, storage, and preparation. Further, the data’s confinement to India alone disconnects the continuum by which companies gather and analyze company-wide statistics. Foreign companies will have to sustain a larger presence in the host nation to extract India-specific data, a task which further complicates overhead costs. Companies outside of India, companies may be repelled from pledging foreign direct investment and seeking commercial expansion because the promise is not worth the burden.

India’s new data localization policy thwarts billions of dollars flowing into its economy. A more sensible approach calls for overhauling these constrictive rules on foreign companies. If this proves politically unfeasible, the government should extend deadlines for compliance and allot partial reimbursement to affected companies, as a gesture of goodwill. Foreign investors are understandably apprehensive about committing to India. With reasonable government support, PM Modi’s government can assuage investing anxieties and, at the very least, salvage a portion of foregone investment by cajoling investors to choose India. 

In the final analysis, e-commerce will predominate the economies of tomorrow. In order to capitalize on the industry’s robust growth projections, India should liberalize its e-commerce sector and empower domestic business to reach peak competitiveness. Embracing this future, not shirking from it, will cement India as a leading global power.

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