India in Penultimate stage of Finalizing E-commerce Policy

Photo by Oleg Magni from Pexels

The Department for Promotion of Industry and Internal Trade (DPIIT) circulated the draft e-commerce policy couple of weeks back in which it proposed regulating cross-border data flows, locating computing facilities within the country to ensure job creation and setting up a dedicated data authority for issues related to sharing of community data. It asserted that the data generated in the country is a national asset and citizens and the government have a sovereign right over it.

But due to the incongruity between the government and the companies with respect to exporting AI (artificial intelligence) product, the stakeholder companies asked the government to come up with ways to boost exports by small manufacturers in India and expressed its interest in sourcing products from India for the world.

Companies further added that by restricting the flow of data to third parties, India’s innovative AI start-ups could be hurt. Global ecommerce player Amazon explained that since offline and online retail are merged today, the government shouldn’t only focus on restricting the sale of counterfeit products online because these would get pushed offline, achieving no real result for brands and customers. According to the private players, the e-commerce policy can be split into an e-commerce policy and a business data policy and the business data should cover all businesses including telecom, banks and retail trade. They also seconded that there must be restriction on when the government can ask for data from companies, permitting it only in law and order investigation situation, but not otherwise. It seems private players don’t want government to intervene much as data is something which is extremely sensitive for them. Let’s try to see the reason behind this aloof approach.

With the growth of cross-border trade in e-commerce, this sector is now discussed in multilateral forums such as the World Trade Organization (WTO), G-20, and the Organisation for Economic Co-operation and Development (OECD). The WTO is the exclusive forum for negotiating and enforcing global rules governing cross-border trade in goods and services. The past decade has seen double-digit growth in e-commerce trade, which is fuelled by development of different business models; liberalisation of services such as telecommunications; technological developments; penetration of broadband, Internet and smartphones; and government support for digitisation. According to the United Nations Conference on Trade and Development (UNCTAD), global e-commerce market was worth approximately US$22.1 trillion in 2015-16. Global Business-to-Business (B2B) sales were valued at US$22.4 trillion and Business-to-Consumer (B2C) sales at US$2.9 trillion. While developed countries such as the US and UK are large markets for e-commerce, over 40% of the total global e-commerce spending comes from China, Brazil, India, and the Republic of Korea. The US and China are among the largest exporters of e-commerce, while India is among the fastest growing markets. A study by Technavio (2016) estimated that the global e-commerce market will grow at a compound annual growth rate (CAGR) of over 19% till 2020. In recent years, a number of Indian start-ups have emerged in areas such as e-retailing (Flipkart, Snapdeal), credit lending (Faircent), food delivery services (Swiggy.com, Fresh to Home, ID Fresh Food), and logistics management services (FarEye, Unbxd).

India’s e-commerce market is expected to grow at a burgeoning rate of 29% from 2020 to 2025, which is way higher than global growth rate. Rising number of high-speed internet users is encouraging businesses to innovate and offer a diversified array of products & services online. Over the last few years, with significant improvements in the payment structure in e-commerce market, consumers in India are gradually shifting towards online space and are shedding their belief of online shopping medium being unsafe. Consumer electronics, online travel and apparel & accessories are the market segments exhibiting promising growth. With the option of same day delivery, online groceries stores are also entering into the country’s online space

Concerns
While regulation is developing, there are some breaches in regulations and policies. For example, India is one of the few countries that does not allow FDI (foreign direct investment) in inventory-based model for e-commerce, which has bound global e-commerce companies such as Amazon.com. Further, there are issues related to protection of intellectual property rights, consumer privacy, and regulation of global e-commerce and technology giants. The country is yet to have robust national security and data protection regulations, and there is no clear policy on how to tax e-commerce transactions. There needs to be a critical analysis on the regulations implemented by other developed and developing countries on issues such as data protection, intellectual property rights, data storage (server localisation), and consumer privacy, and design its own regulations based on global best practices and the country’s requirements. It can also collaborate with like-minded countries to develop strategies to protect domestic policy space.

RCEP Angle
The completion of the e-commerce provisions of the Regional Comprehensive Economic Partnership (RCEP) is expected to be completed within the first half of the year. Members are looking to conclude, among others, the core chapter which concerns market access for goods, investments and services. The pact involves the 10 ASEAN member states, plus Australia, China, India, Japan, South Korea and New Zealand. Once concluded, RCEP will be one of the biggest free trade agreements with the 16 participating countries accounting for almost half of the world population; 31.6% of global output; 28.5% of global trade; and a fifth of the global foreign direct investment inflows