Babus Put Together a Wishy-Washy e-Commerce Policy

E-commerce is one of the trade channels enabling cross-border trade of goods and services. The Information Economy Report, 2017 of the UN Conference on Trade & Development (UNCTAD) said worldwide e-commerce reached 25.3 trillion dollars in 2015, a lion’s share of (90 per cent) which was in the form of business-to-business e-commerce with barely a 10 per cent in the form of business to consumer (B2C) sales. A report for Different Truths.

India’s policy wonks and mandarins in the Ministry of Commerce & Industry have at long last woken up from their feigned slumber to put in place a draft National Policy on Electronic Commerce (e-commerce) a few days ago. This draft with warts and all would now be scanned by a heavy 70-member think tank chaired by Union Minister for Commerce & Industry and Civil Aviation Suresh Prabhu. As the draft was authored by the just-retired Commerce Secretary Rita Teaotia, it had all the ingredients to make the stakeholders feel frustrated. This is presumably so as the draft is replete with typical gobbledygook and cumbersome provisions ranging from mandatory data localization, compliance with foreign investment caps in e-commerce and a national regulator for e-commerce that is likely to be headed by a serving or retired babu with a perverse incentive to indulge in regulatory capture or ride his or her hobby-horse to harass the players on the field.

It is germane to note the emerging contours of ecommerce in the country before a detailed analysis on the implications of the new draft is scanned. E-commerce is one of the trade channels enabling cross-border trade of goods and services. The Information Economy Report, 2017 of the UN Conference on Trade & Development (UNCTAD) said worldwide e-commerce reached 25.3 trillion dollars in 2015, a lion’s share of (90 per cent) which was in the form of business-to-business e-commerce with barely a 10 per cent in the form of business to consumer (B2C) sales. It further reckoned that cross-border B2C transaction was worth 189 billion in 2015. The Economic Survey 2017-18 estimated that e-commerce market in India was worth 33 billion dollars with a 19.1 per cent growth in 2016-17. Like everything associated with information technology (IT) that throve sans government’s ubiquitous fangs, this industry has been growing by leaps and bounds. Hence, it is but natural that the authorities find a fertile ground to discipline this growing sector lest the hapless consumers should be the putative victim in the e-commerce industry’s aggressive marketing ploys and pranks the world over!

Even as the new draft is being studied, the position on the ground today is that e-commerce activities are governed by a host of regulations/Acts of the government and Information Technology Act, 2000 that accords legal recognition for the transactions carried out by means of electronic data interchange (EDI) and other means of digital communications, commonly advertised as e-commerce. The latter involves the use of alternative to paper-based methods of communication and storage of information. The e-commerce companies have to comply with the Companies Act and other applicable laws of the land. Such companies with foreign direct investment (FDI) can operate only in activities which are specifically allowed as per the “Consolidated FDI Policy Circular, 2017” as notified under Foreign Exchange Management Act (FEMA), 1999 that is amended from time to time! Besides, activities of e-commerce firms entail and encompass compliance of Shops and Establishment Act of the State concerned and it is pretty doubtful whether the states have the wherewithal to monitor and catch individual transactions among people through e-commerce companies! To boot and compound the woes of the players, the Department of Consumer Affairs has introduced a Consumer Protection Bill, 2018 in the Lok Sabha early this year with guaranteed provisions to take measures to prevent unfair trade practices in e-commerce, direct-selling and also to protect the interests and rights of consumers!

Be that as it may, the draft policy proposals postulate that data generated by users in India from various sources including e-commerce would be stored exclusively in India. Government would have exclusive access to data so stored in India for national security and public policy purposes. The draft has pitched for data localization and recommended a two-year sunset clause for the industry to adjust before localization rules become mandatory. It has also favoured direct and indirect tax sops as well as giving infrastructure status to data centres to encourage domestic data storage. In order to encourage micro, small and medium units, the draft policy proposes permitting them to follow inventory-based models for selling locally produced goods through online platform. Such companies may also be allowed up to 49 per foreign investment. Presently, e-commerce platforms are allowed only to follow marketplace model where 100 per cent FDI is allowed. But the government has so far not permitted any FDI in inventory-based models.

Critics have frowned upon the draft proposal to tinker with shareholders’ rights by placing restrictions on pricing strategies through deep-discounting. Foreign firms like Amazon and Flipkart, now owned by deep-pocket Wal-Mart established their popularity not only with their war-chest of money power to offer deep discounting to online purchasers but also retained their loyalty by being price competitive and sticking to delivery schedule on dot. With the domestic e-commerce market constituting a speck in aggregate retail sale and the youthful population with income getting interested in online shopping, the only way to attract them is to offer price discounts. Here the foreign e-tail giants in partnership with local minnows have the means to pamper the new clientele to win them over and it is short-sightedness in policy to prevent this from happening. Again, even as the foreign direct investment curbs on players who could hold their own inventory are sought to be lifted, the riders that they should have a majority Indian partner and all products must perforce have to be made in India would rob them of much zeal in the abysmal absence of pricing strategy and controlling power of the company they have put their money in for a long haul. All these proposals would add on to the cost of e-tailers particularly due to the proposed norms on storing and processing data locally.

For a country which claimed that its efforts with various other like-minded trading partners at the ministerial conference of the WTO in December 2017 in Buenos Aires (Argentina) to get non-negotiating mandate of the extant Work Programme on E-commerce, the time is ticking fast that more than 80 countries are discussing the e-commerce inclusion in the formal trade agenda for liberalization in the WTO. E-commerce leviathans like Amazon and Wal-Mart and China-based Alibaba are licking their lips to gorge the gigantic Indian market. It is ironic that under this circumstance, New Delhi and South Africa have demanded at a meeting in July 12 in Geneva of the WTO whether it is “proper to continue with the current practice of not imposing customs duties on electronic transmissions”. If India seeks to get customs duties paid for all online transactions that take place here, it should either join the WTO negotiating group on e-commerce sans posturing or fine-tune its own policy on e-commerce to facilitate online transactions without hitch or hindrance. But the new draft it has floated has not its core concerns focused on either to the dismay of all the stakeholders.