Alibaba grappling with policy bottlenecks in India

It is watching e-commerce policy fineprint before spelling out India plan

American e-commerce giant Amazon is not the only multinational grappling with policy bottlenecks in India. Chinese internet major Alibaba, which is planning a direct India entry in the e-commerce space, is also learnt to be watching the policy space closely before it takes a plunge.

Making Alibaba nervous is the Press Note 3 or the latest guideline on e-commerce brought out by the Department of Industrial Policy & Promotion (DIPP) that restricts discounting by sellers on any online marketplace platform.

In addition, high level of cash-on-delivery in Indian e-commerce space and return of goods that comes with it are another area of concern for the company.

While permitting 100 per cent foreign direct investment (FDI) in online marketplace, the guidelines said e-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level-playing field.

The implication is that there will be crackdown on companies which offer freebies, discounts or cashback. Another guideline coming in the way is that no e-commerce entity will permit more than 25 per cent of the sales through its marketplace from one vendor or its group company.

Alibaba, which already has investments in Snapdeal and One97 Communications-owned Paytm, did not want to comment on the challenges or hurdles that it must cross to enter the India market directly.

However, industry watchers and analysts are listing out the roadblocks before the Chinese company. According to Arvind Singhal, founder of Technopak, a retail consultancy, the e-commerce regulation is the single biggest challenge before Alibaba right now. How discount is to be defined is also not clear, Singhal said. "It's arbitrary and not at all transparent." But, there's more.

An executive at an international analyst research firm said the Jack Ma-led company is trying to iron out issues with the customs department in India. He explained that Alibaba is likely to host sellers with a large number of Chinese goods as its USP (unique selling product).

Since return of goods is quite common when a customer is making payment after delivery, the company is working out the modalities of shipping back the Chinese merchandise in case of return, he said.

Aamir Jariwala, secretary, E-commerce Coalition, said re-export norms while shipping back products on return could turn out to be a big logistics issue. At times, the cost of return could be as much or more than the price of the product being returned, he pointed out.

Industry estimates peg cash-on-delivery at around 60 per cent of the total in the country. Although the average rate of return of goods is anything between 5 and 10 per cent of the items sold, it could be much higher in some geographies and pincodes.

Experts also argue that the problem resolve on its own over a period of time as cash on delivery would reduce as the market matures.