CCI's Retail Regulation Update is Creating Panic Among Small Online Sellers: India SME Forum

India is home to approximately 6.3 crore MSMEs, many of which have transformed and scaled their businesses drastically. This has enabled them to gain an identity as a brand and tap new customers, nationally as well as globally. However, the recent reports on the drastic measures to regulate the retail space by the Competition Commission of India (CCI) have shaken the entire MSME community to re-evaluate the ease of doing business online.

The applicable laws set a high threshold for the exercise of powers to conduct Dawn Raids. Importantly, the Director-General (DG) must establish that the parties under investigation are not meeting the information requirements, for it to make its case. It must also establish that evidence could be hidden or destroyed by the parties. To put it simply, a raid is not and should not be considered as the primary method to get information to support an investigation, but it should be the last recourse for the DG. The competition body is mandated to investigate for anti-competitive practices and not to go beyond the ambit of its power or investigate areas beyond cartelization. Their action sets a very dangerous precedent for MSMEs operating online or wishing to adopt the channel.

India’s digital ecosystem is still at a nascent stage and needs time to become a mature segment to scale their resources and get access to large-scale architecture. This restricts the segment to limited players at the moment. CCI’s recent moves highlight a shift in their interpretation of ‘relevant market’ to define offline retail as a separate relevant market altogether as opposed to both online and offline retail making up the ‘relevant market’ which was their stance over the last 7-8 years. This is especially problematic because it subjects India’s growing online ecosystem to erratic interpretations of law, something that has plagued the country and has had an adverse effect on foreign investment sentiments.

To drive further discussion around this, India SME Forum conducted a roundtable comprising bureaucrats, industry leaders, and legal experts, and moderated by Mr. Vinod Kumar, President, India SME Forum, to discuss how the regulators must desist from singling out online sellers in an arbitrary manner and highlight the need for a level playing field between all retail players, offline as well as online. He initiated the conversation by highlighting, “At present, the CCI already has major challenges before it due to the behaviour of the commodities market. However, if they are targeting only online sellers, that sends a wrong message to all the players across the value chain.”

Adding to this, Dr. Aruna Sharma, IAS, Former Secretary, Govt. of India spoke on the online-offline parity highlighting, “With digital payments enabled by the government, input format for digital payments must be simplified. Additionally, there should be parity in GST regulations for all sellers and not just online sellers, with a single slab for low value goods and separate slab for luxury goods. The government should, in fact, provide tax benefits to small businesses that choose to go digital.” Mr. Ramesh Abhishek, IAS, Former Secretary, DPIIT, also suggested, “Simplification of processes and tax slabs will help ease compliance burdens as smaller sellers with low turnovers do not have the necessary resources to handle tax compliances, thereby requiring a policy intervention.”

Ms. Nirupama Soundararajan, Economist and CEO, Pahle India Foundation, went on to say, “By introducing digital payments and GST, the aim was to formalize an informal economy. But the GST policy, under the current framework, is a deterrent to formalize the Indian economy and provides no incentives for small businesses due to compliance requirements. On the other hand, online commerce has become that incentive, providing immense opportunities for small businesses so that entrepreneurs are willing to go through the hassle of GST registration in order to enter the digital economy.” She further stated, “A differentiated policy for the big and the smaller sellers disincentives smaller sellers to grow big. The current policies seem to be focused on regulating just the larger players without looking at the whole e-commerce sector as a whole.”

Ms. Shreya Suri, Partner, IndusLaw, said “It is difficult to ensure parity between online and offline markets in the existence of an informal economy like India. Therefore, efforts must be made to incentivize online markets further to enable adoption of digital payments so that there is overall regularity in the market.”. Mr. Lloyd Mathias, Business Strategist, and Angel Investor, highlighted, “Policies and regulations need to be viewed from an egalitarian perspective for both mega and small sellers, who can effectively get a wider reach online. Use of tech can be a great enabler for both sides of the divide, with mobile wallets leading the way.”

There is a need for a balanced set of regulations governing online as well as offline businesses through the same lens. It is crucial to understand the global potential of e-commerce platforms to enter new domestic markets beyond national borders and accelerate exports. Any move to over-interfere or overregulate the space can impact the already staggering MSME community in India.