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Draft National E-Commerce Policy: Treading the Thin Line Between Regulation and Restriction

Professor of Financial Economics and Part-time Value Investor, Transfin.
Mar 11, 2019 11:14 AM 5 min read

Backdrop: The government recently released a draft e-commerce policy for stakeholder comments, barely two months post rollout of its new FDI policy which shook the nascent industry, especially major players. The Draft deliberates upon a comprehensive framework aiming to preserve consumer interest by creation of suitable regulatory mechanisms.


However, like most policy actions, it walks on a fine line of managing citizen interest at the expense of creating a less-than-conducive regulatory environment for the industry at-large - one that may not allow the country to reap the maximum benefit from the rapid digitalization of the domestic, as well as the global economy.


Let’s Start from the Start: India’s burgeoning e-commerce market was valued at $38.5bn in 2017 and is estimated to rise to $200bn in 2026. Electronic commerce and data are emerging as key enablers and critical determinants of India’s growth and economic development, facilitated by cheap smartphones and even cheaper data.


Here’s a rundown of the key points:


On Point?: Six broad issues have been touched, including i) data, ii) infrastructure development, iii) e-commerce marketplaces, iv) regulatory issues, v) promotion of domestic digital economy and vi) export.


Data is the New Oil: There’s an overwhelming push for a robust administrative, regulatory and legal mechanism to control data flows. The word “data” itself has been quoted more than 200 times within the 42 page document. The principal case has been that an individual consumer/user who generates data retains ownership rights over it.


Viewed in conjunction to the Personal Data Protection Bill submitted to the government (for consideration by the Justice BN Srikrishna Committee on 27th July 2018), the policy at the least envisages to regulate cross-border data flow while enabling sharing of community data (data collected by IoT devices installed in public spaces like traffic signals or automated entry gates).


Draft National E-Commerce Policy: Treading the Thin Line Between Regulation and Restriction


Breaking it Down:


  • No data collected or processed in India shall be made available to a third party or to other business entities outside India, for any purpose, even with the consent of the customer. Neither can it be made available to a foreign government, without the prior permission of Indian authorities. The document, however, is light on details around potential implementation mechanisms.
  • Push for a three-year data localization requirement 


Backbone: Development of data-storage facilities/infrastructure is another vital part of the value chain recognized.


  • Data centres, server farms, towers and tower stations, equipment, optical wires, signal transceivers, antennae etc. will be accorded ‘infrastructure status’ – facilitating access to longer maturity loans, easier lending terms, and even cheaper foreign currency funding through the external commercial borrowing route. An ‘infrastructure status’ also seeks to streamline the regulation of the sector.
  • Budgetary support to be provided for the exploration of domestic alternatives to foreign-based clouds and email facilities


Supply Chain Transparency:


  •  To streamline functioning of the e-Commerce sector under the FDI Policy, e- commerce websites/applications are required to ensure that all product shipments from other countries to India must be channelized through the Customs route.
  • The Policy provides for integrating Customs, RBI and India Post systems to improve tracking of imports through e-Commerce.
  • All ecommerce sites/apps operating in India must have a registered business entity in India as the importer on record or as the entity through which all sales in India are transacted.
  • All parcels under the ‘gifting’ route to be banned, with the exception of life-saving drugs. This move comes in light of companies exploiting India’s “gifting” rule whrein personal gifts priced below INR5,000 are exempt from duties. Several red flags have been raised in the recent times over numerous “gift” deliveries being made to the same address and heavy 15 kilogram parcels being brought in with a declared value of just INR3,000.


Draft National E-Commerce Policy: Treading the Thin Line Between Regulation and Restriction


Watchdog: Given the inter-disciplinary nature of the sector, a Standing Group of Secretaries on e-Commerce (SGoS) would be appointed to regulate the issues effectively. No standalone regulator proposed, so far.


Bonus: The Policy also proposes regulation of advertising charges in e-commerce (including social media platforms), to create a “level-playing field” for small businesses, who otherwise have to allocate an excessively high proportion of their budget and working capital to advertising to find their potential customers. In our view such a stance borders on regulatory overreach and we’d be very wary of its detailed wording, whenever it comes out.


In Conclusion


While the draft ecommerce policy means well for MSMEs and startups who seek to break through the competitive space, it is also likely to increases their compliance costs having to restructure means of how they store and share data.


Giants such as Amazon and Flipkart will likewise be hit in a significant manner, forced to make huge changes to comply with the proposed rules, even as they have often been known to find legal or other ways to circumvent potential downsides.


The enhanced cost of compliance may also have an adverse bearing on the rate of investment in Indian e-commerce, specifically on FDI inflows.


As for the consumers, the policy seeks to offer some respite with strong anti-counterfeiting and anti-piracy measures, pushing e-tailers to publicly share all relevant details of the sellers listed on their portals and ensuring speedy redressal of consumer grievances.


While the draft at multiple instances reiterates the need for the creation of a facilitative regulatory environment for growth of e-commerce sector, it falls short of providing specific details on implementations or addressing any operational nuances.  


Moreover, the manner in which the policy addresses the question of ownership of personal data has been termed as “unusually parochial”, often directly at odds with the recommendations of the Justice Srikrishna Committee and the decision of the Supreme Court in its right to privacy judgement.


With the Department for Promotion of Industry and Internal Trade having kicked-off a round of stakeholder consultations on the draft policy, one can only hope that the future iterations don’t propose ham-fisted solutions to problems, rather push for a more definite and implementable framework.


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