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Proposed e-commerce policy to bring uniformity desired by sector, propel investments
Atul Pandey

The draft national policy framework on e-commerce has been written up largely with an objective of establishing a uniform definition of e-commerce, addressing issues related to data storage, creating financial infrastructure and boosting the sale of domestically produced goods through online platforms. By 2030, the digital world is projected to account for almost 50% of the Indian economy.

Definition of e-commerce

Currently, there exist multiple definitions of e-commerce in India. The goods and services law defines e-commerce as the supply of goods or services or both, including digital products, over digital or electronic network. The Reserve Bank of India defines e-commerce as buying and selling of goods and services, including digital products, over digital or electronic network.

It has been proposed that the communications and infotech ministry’s definition be adopted: “A type of business model, or segment of a larger business model, that enables a firm or individual to conduct business over an electronic network, typically the internet.”

Implications: Currently, e-commerce is dealt with by several pieces of legislation such as the Information Technology Act, 2000, the Foreign Direct Investment (FDI) Policy, the Goods and Services Tax Act, and consumer protection laws. This attempt to make uniform the legal framework should be welcomed as there would be no ambiguity on criteria and threshold for e-commerce.

Inventory-based business-to-consumer model

It has been proposed that: “The sale of domestically produced goods through online platforms would be promoted by allowing limited inventory-based business-to-consumer model. Hundred per cent made-in-India products would be sold through platforms whose founders/promoters would be resident Indians, with the company being controlled by Indian management and foreign equity not exceeding 49%.” This proposal must be implemented by the Department of Industrial Policy & Promotion (DIPP) through changes to the FDI policy.

Implications: This proposal should be welcomed by industry players. An inventory model should facilitate business interests by providing better service to consumers. Under the model, the service provider can have some control over various factors such as the number of products in stock, the location of the product, and the packaging and distribution of the product. This will also likely improve delivery time.

Data storage: Domestic and cross-border data

Data collected by Internet of Things devices in public space and data generated by users in India from various sources including e-commerce platforms, social media, and search engines would have to be stored in the country. Data not collected in India, business-to-business data as part of a contract between a foreign entity and Indian company, software and cloud computing services involving technology-related flows, which have no personal or community implications, would not be subjected to any restrictions in data flow outside India.

However, the proposed e-commerce policy provides a two-year sunset period before data localisation is made mandatory.

Implications: The thought process behind data storage and localisation appears to be aligned with the recommendations of the BN Srikrishna committee. The panel had observed: “Any obligation requiring the storage and processing of personal data within India should be based on clear advantages arising out of the implementation of such a measure. A policy preventing copies of personal data from being transferred abroad could take two forms: First, a mere requirement to maintain one live, serving copy of personal data (while allowing other copies to be transferred), or second, a stricter requirement that personal data be processed only within India.” The proposed e-commerce policy seems to have kept in mind the above objectives. However, its impact on the e-commerce sector is yet to be seen.

Financial intelligence for future innovation: RuPay and its usage

It has been proposed that the adoption of RuPay by consumers be enhanced by mandating its listing as an option for payment in e-commerce transactions. It has also been proposed to address quantitative deficiencies in service and provide budget for wider use of RuPay.

Implications: This should facilitate wider use of RuPay, resulting in a shift of consumers from payments networks offered by global players. Recently, our prime minister had urged everyone to use RuPay cards for digital payments to ensure that the transaction fees can be used to make India better. 

Incentivising fund investment in e-commerce platforms

Many reforms have been suggested to boost the e-commerce investment climate such as incentivising infusion by large Indian companies into start-ups, raising the cap on pension funds for investing in venture capital, amending the 36-month liquidity restriction on promoters, and providing incentives to angel investors by changes in tax laws.

Implications: This is expected to further propel investment activities in this sector. This sector should continue to see a lot of activity in terms of investments and consolidation in the coming years.

Scrutiny of M&As involving e-commerce firms

The proposed e-commerce policy says that the Competition Commission of India (CCI) should examine competition-distorting mergers and acquisitions (M&As) in the e-commerce sphere.

Implications: Now, most of the M&As in this sector would need to be blessed by CCI and this would be another tick-the-box item that needs to be thought through by the parties effecting a deal in this space. This might lead to slight delays in terms of timelines for closing of M&A deals in this sector. At this stage, it is apt to take note of the observations by CCI while passing an order pertaining to the Walmart-Flipkart deal: “Issues falling beyond the scope of the Act cannot be a subject matter of examination by the Commission, though they may merit policy intervention. Going by FDI policy, an e-commerce platform cannot influence market prices directly or indirectly. However, this is a matter of consideration for the appropriate regulatory/ enforcement authority. The issues concerning FDI policy would need to be addressed in that policy space to ensure that online market platforms remain a true marketplace providing access to all retailers.”

Single regulator and big-ticket reforms

It has been proposed that a single regulator be created to address issues in this sphere. The way forward would lie in formulating a single piece of legislation to address discrepancies in the e-commerce sector and the legal fragmentation prevalent through multiplicity of laws and the implementation issues surrounding them.

Implications: While the idea of having a single regulator and a single piece of legislation to govern the e-commerce sector should be welcome, but the idea of creating a separate regulator called Central Consumer Protection Authority appears to be contradictory to this objective of uniformity mooted in the proposed e-commerce policy.

An effective implementation of the policy is critical and some of the changes are indeed welcome and should be beneficial to the industry.

Atul Pandey is partner at Khaitan & Co. Senior associate Satish Padhi contributed to the article. Views are personal.

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