Overview of draft national e-commerce policy

The much-awaited draft national e-commerce policy has been released by the Department of Industry and Internal Trade in the public domain for the comments by various e-commerce stakeholders. Just 2 months ago, the Government of India updated FDI norms for the e-commerce sector. The government tightened the FDI norms in the backdrop of deep discounts and distortion of the e-commerce market in India. The draft policy reiterated these norms and also wants to regulate the user data created in India. The cross border flow of the data will be restricted. The usage, protection, and privacy of the user-generated data are considered very important for robust development of Indian e-commerce and inclusive digital economy. The policy stressed upon data localization and creating the infrastructure for the same.It aims to create a level playing field for both foreign and domestic players. Therefore both these developments in the e-commerce industry are very important for international as well as local e-commerce players too.

The big US online marketing giants Amazon and Walmart are eyeing on lucrative vast consumer market driven by rising middle class. These giants are trying to consolidate their positions in hot e-commerce market of India. Being as first movers in the Indian e-commerce sectors these companies don’t want to leave any stone unturned to capture the online market. It is estimated that Indian B2C e-commerce market will reach $200billion mark in the near future from $38.5 billion in 2017 and B2B e-commerce will be around $300 billion. This untapped market is an excellent opportunity for foreign investors.

Given the nascent stage of the sector, it needs regulations for robust ecosystem development. The policy aims to bring such a regulatory framework in place so that India can get the full benefit of the national and international digital economy. The new policy on e-commerce will complement the programs like Digital India, protection of digital infrastructure, Skill India etc.

In this article, we look into various aspects of policy, impact on foreign funding, protection of local players and overall impact on e-commerce eco-system of India.

Why vast Indian consumer data is new oil?

India being consumer friendly country generates a huge volume of user data every day which can be used for informed business decision making or misused for illegal activities. At the end of 2014 average monthly data usage per person was just 0.26GB but due to the revolution in communication technologies and availability of cheaper and faster smartphones the average data usage per person has increased to 4GB at the end of 2017. This increase in internet data usage means more generation of user data. Therefore to safeguard citizens in a global economy requires the protection of their personal and other related data.

In the present time, the e-commerce sector is increasingly centered on data and various new technologies like big data analytics, artificial intelligence, machine language etc. The e-commerce companies use these data analytics techniques to know the behavior or trend of consumer demands, preferences, targeted digital marketing etc. The consumer even doesn’t know whether his or her data being processed or not by companies. So this policy document wants to bring awareness among users about their data, consent and bring stringent restrictions on using data without consumer’s consent. It banned the sharing of sensitive Indian consumer data to the third party even with the consent of users. The protection of consumer data becomes necessary when India being consumer-oriented economy ranks second in world population and such a vast volume of data and its processing can play a crucial role in a very competitive e-commerce sector. There is no doubt that companies having access to consumer data and analytical technologies will have an edge over their competitors.

The draft policy exempted some categories of data for cross border flow. For example, data which is collected outside of India, data collected at public places which have no personal or community implications, data sent to India from business entity of other nation to another business entity located in India etc.

The policy is keen on developing domestic capacity on data storage, servers etc. The companies need to set up data or server centers in India. Three years of time is given to companies to allow them to tune with new regulations and storage requirement. These new domestic commercial activities will help in creating local jobs in the age of automation. Setting up of data centers, server farms, towers etc will be accorded infrastructural status. The grant of infrastructural status will help and guide various agencies for support and financing these projects.

How does draft national e-commerce policy addresses the problem of counterfeit products?

To counter the trend of selling counterfeit products the policy brought some strict guidelines. The market places need to disclose the details of the retailer or sellers publicly. The traders or sellers need to take an undertaking that the products traded by them are original and genuine. Marketplaces or online platforms need to make this undertaking available to customers. If there are any counterfeit products are traded then these entities or platforms need to inform the trademark owners about such activity. So the responsibility that genuine products are traded lies on the marketplaces. The platforms also need to take permission from trademark owners before listing any product which has any impact on the health.

What are custom obligations on e-commerce players?

The online stores need to make sure that products ordered through their websites or apps should be shipped through custom route. Currently, the tax exemptions up to 5000 Rs is allowed on the gifts sent to relatives in India from abroad. Many Chinese e-commerce companies were exploiting this loophole by avoiding customs duty and GST and were shipping cheaper products as gifts to India. All parcels with misuse of norms will be banned except life-saving drugs. All e-commerce websites or apps available for download in India need to have a registered business entity in India as the importer on record.

How does the policy benefit small-medium businesses or startups?

The policy aims to reduce the transactions costs of small businesses or start-ups by removing application fee for claiming export benefits. Indian post will leverage its wide networks with international freight carrier companies for negotiating low shipping cost so that small businesses can be benefited by the extensive network of Indian post across the country.

The digital space is largely occupied by a few social media platforms and search engines, therefore, they virtually have access to almost all internet traffic and charge a high cost for advertisement. The companies with high money at disposal can afford such high cost of marketing and can capture large internet audience while such high prices are the barrier to startups and small businesses. The policy mentions that such access to data distort the digital economy and hence require regulations of advertisement charges at least for small and startups.

The data and network effects are barriers to the sustainable growth of small firms and startups. They can be given the status of infant –industry. One of the benefits of such status could be access to data.

What does policy say about FDI?

The policy aims to avoid capital dumping and clearly demarcates the marketplace and inventory models. The FDI is only permitted in the marketplace model. If there is foreign direct investment in a platform then it cannot own or exercise control over inventory sold on its platform. The platforms cannot adopt discriminatory practices hence cannot favor a few sellers or traders. The marketplaces will have to offer a level playing field for all stakeholders irrespective of their size (big firms or small and startups).

What does e-commerce policy say about product reviews?

The ratings and reviews play important role in customer acquisition and loyalty in digital marketing. They influence consumer behavior like word of mouth. Therefore it is essential that these ratings and reviews should be authentic and real in the interests of consumers and healthy development of the e-commerce sector. The marketplaces should maintain transparency in publishing the reviews. They also need to stop fraud reviews on their platforms.

Do e-commerce companies need disclosure of the source code?

The increasing use of deep learning and machine language will make the decision-making process virtually automatic based on large data sets of users. The draft policy makes an argument that such decisions need to be explained to preserve the right of equality and to maintain a balance between commercial interests and consumer protection. To avoid bad practices like racial profiling it is necessary to have access to the algorithms and source code. If artificial intelligence algorithms are abused then they can have social and public implications. So draft policy makes a strong argument to reserve the government’s right to seek such disclosures.

The draft national e-commerce policy which came after strict foreign direct investment norms again tilted towards domestic players. The norm of data localization may irritate foreign companies and can have a negative impact on investments and job creation. The policy assumes user data as a national asset and wants to retain control with the government. The requirement of data localization can work as trade and investment barriers. E-Commerce companies need to set up computing facilities and data centers in India. It is assumed that data localization will protect user data from misuse but same can be abused by the local players and there is no such clause in the policy document to stop misuse by domestic players.

Indian e-commerce sector is promising and therefore government wants to boost domestic e-commerce companies and startups and at the same time wants to save offline traders from the big discounts, exclusive offers and other price influencing techniques by big e-commerce giants. The policy needs more clarifications on different issues. The government through the consultative process should come up with rules which are beneficial to all stakeholders including foreign companies, investors, domestic firms, startups, and consumers.