New E-Commerce Policy

Context

  • The Commerce Ministry to carry out a fresh round of consultations with stakeholders to address concerns raised by many on the proposed e-commerce policy.

Background

What is e-commerce?

  • Electronic commerce or ecommerce is a term for any type of business, or commercial transaction that involves the transfer of information across the Internet.

Types of e-commerce business model

  1. Online Subscriptions: Here the users can choose from subscriptions available on the website and subscribe according to their needs. For Example magazines like Frontline can be subscribed online
  2. Exclusive Brand Stores: Here the brands create their own online brand stores. Consumers get the advantage of shopping from their trusted brands online without having to visit the physical stores.
  3. Deals Websites: Herewebsites give the consumers various deals available on other websites or stores. For example coupondunia.in etc.
  4. Marketplace: This model of e-commerce means providing a platform by an e-commerce entity to act as a facilitator between buyer and seller.

Here Inventory, stock management, logistics etc are not supposed to be actively done by the ecommerce firm. Based on this there are various websites with different models that they follow. Such as

  • Business-to-Business (B2B);
  • Businessto- Consumer (B2C);
  • Business-to-Government (B2G);
  • Consumer-to-Consumer (C2C);
  1. Inventory Model: Inventory model of e-commerce means an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly. Alibaba of China is following the inventory model.

Reason for the growth of E-commerce in India

  1. Falling communication cost, large population subscribed to internet broadband, 3G and 4G.
  2. Rise in Smartphone Users
  3. Availability of multiple payment options like cash-on-delivery (COD), EMI and free shipping.
  4. Multiple Product Options with Cheap Prices
  5. Changing consumer behavior: Less time to spend in traveling to places and shopping
  6. Foreign Investors are funding ecommerce sector due to strong growth prospects.

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Policy guidelines for e-commerce (2016)

  • 100% FDI under automatic route is permitted in marketplace model of e-commerce
  • FDI is not permitted in Inventory based model of e-commerce
  • A single brand retail trading entity operating through brick and mortar stores is permitted to undertake retail trading through e-commerce.
  • No platform should have more than 25% of its sales coming from a single seller.

Need for new e-commerce policy

  1. Defining e-commerce: There is no commonly accepted definition of digital economy or e-commerce. Further, there is inadequate data on the trade of digital products. Both these shortcomings hinder effective policy making in the country
  2. Rapid growth of e commerce: The e-commerce market is expected to reach US$ 64 billion by 2020 and US$ 200 billion by 2026 from US$ 38.5 billion as of 2017. Thus there is a need for clearly laid-down rules for electronic commerce in the country.
  3. Presence of multiple regulators: E- commerce is currently regulated by multiplicity of government departments such as IT Department, industrial policy, revenue, and RBI. Hence, a national e-commerce policy would consolidate the various norms and regulations to cover all online retailers.
  4. To protect the interest of consumer: With the increasing online frauds, there is a need to strengthen the regulatory regime for protecting the consumer in the context of e-commerce
  5. To scrutinize Merger and Acquisition:Unregulated Mergers and Acquisitions may “distort competition’.
  6. To facilitate cross-border e-commerce: At multilateral forum such as the World Trade Organization (WTO), the government was facing pressure to negotiate rules facilitating cross-border e-commerce.A national e-commerce policy will also enable better negotiations on multilateral issues with the World Trade Organization.
  7. To boost MSME: The e-commerce industry been directly impacting the micro, small & medium enterprises (MSME) in India by providing means of financing, technology and training and has a favourable cascading effect on other industries as well.

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Draft e-commerce policy

  • Draft National Electronic Commerce Policy will steer the approach of the government towards e-retailers, digital service providers and anyone else who conducts e-commerce in India.
  • The draft recommendations were prepared by several stakeholders, including by the private sector and government officials from departments such as commerce, industry, IT and electronics.

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  1. Common definition: A common definition of electronic commerce for the purposes of domestic policy-making and international negotiations would be adopted.
  2. Single legislation: It proposes a single legislation to address all aspects of digital economy and a single regulator for issues related to FDI implementation and consumer protection. It says legal fragmentation seen across various laws governing the ecommerce sector should be corrected.
  3. Data localization: It mandates localization of data in India, consistent with the Srikrishna Committee’s draft data protection bill. The draft also talks about the government having access to data stored in India for national security and public policy objectives.
  4. Disclosures of Data: E-commerce entities would be required to disclose their data collection practices to consumers and share terms & conditions in a simplified format.
  5. On FDI: The draft policy proposes 49% FDI under the inventory model for Indian-owned and Indian-controlled firms to sell locally-produced goods on their online platforms.
  6. Registration of All Ecommerce Portals: All active e-commerce portals in India will have to register with e-Central Consumer Protection Authority (CCPA). CCPA shall act as a nodal agency for intra-government coordination, checking frauds within the industry, formulating regulations and more.
  7. Regulations on Discounts: On the matter of discounts, the draft policy suggests a ‘sunset period’ for every discount and offer, beyond which no e-commerce portal can be allowed to provide discounts. Bulk purchase of branded goods such as electronic products, white goods, branded fashion by related party sellers, which lead to price distortions in a market place would be prohibited
  8. Centralize registration: It recommends Centralized registration instead of local registration of e commerce companies.
  9. Taxation of foreign-owned companies: Use principle of ‘significant economic presence’ as the basis for determining ‘Permanent Establishment’ for tax assessment. This would mean that the geography of an e-commerce platform would be less important than the scale of economic activity it has in India.
  10. For MSME: The policy suggests a public-private retail platform only for micro, small and medium enterprises (MSMEs). It allows MSME to follow inventory based models for selling locally produced   goods   through   an   online platform.
  11. More Power to The Founders:It seeks to give more control and more power to the founders of the e-commerce business, rather than the investors. As per some analysts, this has been done because most of the biggest e-commerce portals in India are funded by foreign investors.
  12. Separate wing in Enforcement Directorate: The draft suggests a separate wing be set up in the Enforcement Directorate to handle grievances related to foreign investment in ecommerce.
  13. Merger and Acquisitions:More scrutiny of mergers and acquisitions that may ‘distort competition’. Competition Commission of India will examine entry barriers and anti-competitive practices. It assumes significance in the light of the recent acquisition of Flipkart by US retail major Wal-Mart.

Impact on online retail

  • Phasing out of deep discounts will choke the demand and hurt the sales
  • There will be a loss of investment from the foreign investors
  • Localization of data will add to the cost of already cash-hungry online retailers due to intense competition.

Impact on offline retail

  • It will provide a level playing field for the local retailers.
  • India’s first clause will give a boost to the sales of the offline retailers.
  • Restrictions on the bulk of wholesale procurements will reduce the price distortion in the marketplace which will be beneficial to the offline retailers.

Challenges

  • Due to mandatory supervision of Competition Commission of India on Merger and Acquisition and regulation on discounts have led to apprehensions of return of license raj.
  • Data localization norms in draft policy hasn’t been taken kindly by international firms as that would increase the cost and also raiseIPR concerns.
  • Curb on discounting in online retail may lead to loss of costumer for many established and new firms
  • Many State governments have shown their reservation towards Centralized registration of e-commerce as subject of commerce falls under State list.
  • The FDI provision restricted to Indian firms may Influence the much the needed FDI in general and e commerce industry in particular.

Way ahead

  • The government needs to strike a balance so that the global investor community is not deterred
  • The government must consult all stakeholders and critically analyse all the issues before finalizing the e commerce policy
  • The government should bring a legislation to regularize e commerce sector on priority basis
  • The policy should also regularize various other model of e-commerce like subscription websites, deals websites etc.
  • The policy must be able to channelize fast changing digital market

 

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Luvpreet Singh
Luvpreet Singh
19 Feb, 2019

Perfect//