Indian Economy Q&A Analysis – E-Commerce Policy

Background:-

In the last couple of years, e-commerce transactions have risen substantially in India and abroad. The size of the digital economy in India will be $1 trillion by 2022 and it will account for close to 50% of the entire economy by 2030.

This necessitates better policy response and coordination among various wings of the government. A national e-commerce policy will be an attempt at creating a one-stop shop for the norms and regulations under which online retailers will be covered.

Draft e-commerce policy:-

Discounts:-

Draft e-commerce policy proposes that all discounts offered by large e-commerce firms be phased out within two years to ensure fair competition with brick-and-mortar stores.

Consumer data:-

It mandates e-commerce firms to store consumer data in India.The firms will be given two years to comply.

An independent regulator will address compliance with FDI caps in e-commerce.

Data localization:-

The draft India e-commerce policy proposes tax sops to encourage data localization and grant infra status to data centers.

FDI:-

The draft policy proposes 49% FDI under the inventory model for firms to sell locally-produced goods on their online platforms. The control of such firms will remain with Indians.

Bulk purchases of branded goods “by related party sellers which lead to price distortions in a marketplace” will be prohibited.

To provide a forum for consumers, the task force has suggested the setting up of a Central Consumer Protection Authority (CCPA).

Foreign e-commerce websites should be brought on a level playing field with their Indian counterparts by making them follow the same rules for payment systems

Greater regulatory scrutiny has been recommended for mergers and acquisitions that may “distort competition’. The Competition Commission of India has been asked to undertake such exercises. This assumes significance in the light of the recent acquisition of Flipkart by US retail major Walmart.

Marketplace model :-

For online marketplaces, restrictions would be imposed on group companies of such platforms.

Redressal :-

The draft suggests a separate wing to be set up in the Enforcement Directorate. This will handle grievances related to guidelines for foreign investment in e-commerce.

Payment :-

Currently, a large number of payments for online purchases is made through the cash-on-delivery option.

To make online payments safer, the task force has suggested creating a fraud intelligence mechanism. This would use artificial intelligence-based authentication systems, for early detection of frauds.

Impact :-

Positives:-

The draft policy makes a strong case for championing Indian online enterprise and creates a level playing field for homegrown companies.

Having a regulator, e-consumer courts may better address complaints about online financial frauds

In the long run, it helps the country and Make in India.

Millions of micro, medium and small enterprises (MSMEs) have a better chance to go online.

It will also help large companies build a viable business rather than just depend on discounts.

National e-commerce policy will also enable better negotiations on multilateral issues with the World Trade Organization.

Negatives:-

It may have major implications for foreign-owned e-commerce majors operating in India.

Heavy discounts offered by shopping portals may soon become a thing of the past.

Existing brick and mortar retailers, for instance, are saying that FDI into e-commerce players has been given a back-door entry. The way to set this right is by allowing 100% FDI in multi-brand retail. Instead, the policy seems to be looking to tighten controls over the e-commerce space under the guise of accelerating the pace of the digital economy “by providing a facilitative eco-system for spurring digital innovation”.

The top concerns raised by e-commerce firms include a recommendation that will restrict sellers to buy in bulk, a sunset clause that restricts discounting on e-commerce platforms.

E-commerce firms may have to share their stored data with the government. This is becoming to these e commerce companies.

Experts are expressing concerns over provisions relating to data protection and localisation.

Way forward:-

The policy need to look into the following issues:-

Modern companies face the challenge of collaborating between different departments, some geographically isolated and present in different time zones. Marketers, merchandisers and e-Commerce managers need to learn to strategically operate through one integrated channel.

Managing a repository of customer data is a challenge in itself, added to that e-Commerce companies have to understand how to use that data. Delivering customized content in the form of advertisements, special offers etc. are some of the methods which can be employed.

The vast rural-urban divide, the incompetent and inefficient delivery infrastructure in many backward areas, the inadequate power supply, inaccessibility of the internet, are some major issues that India needs to tackle in order to successfully craft an e-commerce policy that will add to the economic welfare and development of the country.

Focus on ease of doing business so that the sector can thrive locally too.

All the major segments of an e-commerce platform should be taken care of be it logistics, employees or the back-end. The policy should ensure that all employees are provided with minimum wages, medical expenses, among other benefits.

Managing logistics, seller registration, and inventory accounting present bigger challenges for the e-commerce companies.