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Why Tata is delaying the launch of its super app and why this matters?

The launch of Tata’s super app has been delayed because of certain clauses in India’s proposed e-commerce rules.

Tata Digital has put the launch of its super app on hold until there is more clarity on the proposed e-commerce rules, officials close to the development told Economic Times. The app is currently undergoing closed group testing in Bengaluru and was expected to formally launch later this month.

This appears to be the first unintended consequence of the proposed e-commerce rules, which were primarily targetted at Amazon and Walmart-owned Flipkart. Like Tata, other Indian companies are likely to be impacted as well. Reliance and Adani, for example, will have to restructure their super app plans as well if the proposed rules are implemented as they are.

What is the Tata super app?

Think of a super app as a digital shopping mall, but with the potential for offering even more products and services. Tata first indicated its plan to launch a super app in August 2020 and said that the app will offer users a range of services offered by the Tata group, including food and grocery delivery, fashion and lifestyle, consumer electronics and consumer durables, insurance and financial services, education, healthcare, and bill payments.

What are the proposed e-commerce rules?

The government on June 21 proposed amendments that give the existing Consumer Protection (E-Commerce) Rules, 2020 more teeth. The changes include new rules to limit who can sell on marketplace platforms, the establishment of a grievance redressal mechanism, new display and labelling criteria for foreign goods, the prohibition of flash sales, restrictions on promotions, fall-back liability, among other things. These rules were proposed in response to repeated antitrust complaints against e-commerce giants Amazon and Flipkart.

Read: Summary of the proposed amendments to E-Commerce Rules, 2020

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Why do the proposed e-commerce rules pose a threat to Tata’s super app?

Classification of Tata super app as an e-commerce marketplace: Tata’s super app is not expected to only sell good and services offered by its parent company but also others.”We are trying to give consumers the products and services they need. Not necessarily only the Tata brands, but more. It is an open architecture,” N Chandrasekaran, chairman of Tata Group, told BusinessToday. As such, the app will be classified as a marketplace-based e-commerce entity rather than an inventory-based e-commerce entity.

Tata-owned brands like Trent or Vistara cannot sell on the super app: The proposed rules disallow an e-commerce marketplace’s “related parties” and “associated enterprises” from being enlisted as sellers for sale to consumers directly. Tata’s hundreds of subsidiaries fit the criteria for “related parties” and “associated enterprises.” This prevents Tata brands from being sellers on the platform. According to BusinessToday, the company was planning to bring together the group’s retail companies: Trent, Infinity Retail, Tata Consumer Products, Titan and Voltas; financial products companies: Tata Capital, Tata Asset Management, Tata AIA, Tata AIG; and other companies: Tata Motors, Tata Realty, Vistara, and Air Asia, to the super app. Tata’s recent acquisitions in grocery delivery platform BigBasket, fitness start-up CultFit, and online pharmacy 1mg, were also made with the idea of bringing the services of these companies to the super app. But all these plans are rendered unfeasible by the proposed rules.

What has Tata said about the proposed e-commerce rules?

At a meeting organised by the consumer affairs ministry in July, multiple stakeholders including Tata warned government officials that the proposed amendments would have a major impact on their business models, Reuters reported.

Tata pointed out that the rules could restrict sales of the company’s private brands. For example, Tata’s marketplace platform will be prevented from selling Starbucks products as the company has a joint venture with the coffee giant in India, the report stated.

“The rules would greatly increase the compliance burden of a conglomerate’s numerous entities and interests, and hurt them far more than smaller rivals,” Tata Vice President Poornima Sampath is said to have told the online gathering, according to another Reuters report.

“Tatas also raised the point that its brand name has huge trust among consumers and not allowing it to use the same for its private brands, for example, Tata Sampann, for online retailing would not be in the spirit of enhancing consumer choice in e-commerce,” Economic Times reported.

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What is the government saying?

Reviewing “related party” provision: The government is currently reviewing feedback submitted by various stakeholders. Additional Secretary in the consumer affairs ministry Nidhi Khare said that all provisions, including the definition of “related party” will be examined properly before finalising the rules, the Economic Times reported. An earlier report from The Indian Express also said that the government is revisiting some provisions pertaining to definitions such as “related party” and “e-commerce entity” after facing pushback from many in the industry.

An overreach of the consumer affairs department? The Indian Express report also said that there is a significant criticism from within the government on whether the proposed rules are an overreach of the consumer affairs department because it ventures into areas that are already under the purview of the Department for Promotion of Industry and Internal Trade (DPIIT) and the Ministry of Electronics & Information Technology (MeitY) and contains provisions that are at odds with existing rules, such as DPIIT’s policy for foreign funding. Government think-tank NITI Aayog has also objected to the rules stating that several provisions didn’t fall under the jurisdiction of the consumer affairs ministry and should be reconsidered.

MEDIANAMA’s Take (Nikhil adds): This is what happens when government policies are squarely focused on one or two targets – in this case, Amazon and Flipkart – without taking into account the unintended consequences of the impact on the rest of the space. We’ve seen this play out before – in case of, for example, tax on online advertising about a decade ago, which was meant to target Google, and led to an unlevel playing field between online and offine advertising, because offline newspaper advertising was tax exempt. This contributed to the demise of many a small advertising network, and only ended up furthering the dominance of Google in the space. When will our babus learn that increase in regulation typically ends up favouring the larger incumbent players.

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