Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

The rain forest of regulations that passes as India's e-commerce policy would surely get a nod of approval from Sir Humphrey Appleby, the legendary civil servant from the British sitcom Yes Minister who believed that prudent change results from "laying stress on the essential continuity of the new proposal with existing principles, the principle of the principal arguments which the proposal proposes and propounds for their approval, in principle." Or more pithily, "government policy has nothing to do with commonsense."

And so it has been with Indian online retailing, which just got a new set of rules that seemingly allow 100 percent foreign direct investment, yet are being cheered by the country's largest home-grown brick-and-mortar store operator as a slap on the wrist for rivals like Amazon India, Flipkart and Snapdeal. Those companies essentially are foreign-owned: Flipkart investors include Tiger Global and Singapore's sovereign wealth fund, GIC; Snapdeal is backed, among others, by Jack Ma's Alibaba.

Cyber Shopping
India's e-commerce market is expected to top $38 billion this year
Source: Assocham India
* 2016 forecast

How can opening the door mean the exact opposite? The devil is in details of the policy, which says e-commerce platforms will only provide a marketplace and not influence the sale price of merchandise. In other words, while foreigners can facilitate retail, they will not really be retailers, burning their deep-pocketed investors' money to drive myriad mom-and-pop stores out of business.

Goldman Sachs believes the rules "could spell an end" to discount-led competition among e-tailers. While that might be a welcome path to eventual profitability for an industry surviving on bragging rights about how much merchandise it handles, what's good for the collective may be bad news for individual companies. Late last year, the lobby group of traditional Indian retailers kicked up a fuss when Amazon gave out measly 200 rupee ($3) gift cards to consumers, because this purportedly showed Amazon acting as a retailer when it was only allowed to be a technology platform.

If the new rules do nothing but extend the "essential continuity" of the old rules, that might please Sir Humphrey -- but Jeff Bezos is certainly going to mind.

Already, the industry is in the throes of madness amid reports that Alibaba is looking to enter India on its own. Flipkart co-founder Sachin Bansal said on Twitter that “Alibaba deciding to start operations directly shows how badly their Indian investments have done so far." Snapdeal founder Kunal Bahl decided to repay in kind: "Didn’t Morgan Stanley just flush 5b worth of market cap in Flipkart down the (toilet seat icon)? Focus on ur business not commentary."  

Does this look like an industry that's going to calmly end discounts and start behaving like a boring tech business, just because there's a new government policy that's nudging them in that direction? Hardly. The smartphone revolution in India is just getting started. 

On the Up
Internet usage in India is growing but penetration still remains low
Source: World Bank

Expect online retailers to come up with creative ways to reach for a share of what Goldman Sachs says will be a $69 billion e-commerce market by 2020: Loopholes will be found to acquire new customers. The discounts will shift shape, but they won't die, and that might prompt a fresh round of rule-making that will muddy the waters still more.

As Sir Humphrey said, "Formulating policy means making choices. Once you do that, you please the people that you favor, but infuriate everybody else." Right now, everybody seems to be either happy or confused. India doesn't yet have a settled e-commerce policy.

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Andy Mukherjee in Singapore at

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