Don’t strangle Indian e-commerce

Live Mint, August 27, 2018

By Pradeep S Mehta

E-commerce in India is facing huge buoyancy, both in terms of the market and policy space. In terms of the market, the majority investment in Flipkart by US retail giant Walmart, and a substantial proposed investment by Alibaba in Reliance Retail recently made news. Some pundits say that some of these moves may result in market distortions. Apparently, vested interests are muddying the waters.

On the other hand, the government has prepared a draft national policy framework on e-commerce in India. Many think it is a policy statement which, in fact, it is not. The framework is a discussion paper which has captured myriad views from different stakeholders, from which a sensible market-friendly policy has to be carved out. The process was very good in that a large number of views were taken on board, but they are yet to be distilled. This is causing so much confusion that the Prime Minister’s office has had to step in.

Of primary concern is whether the e-commerce market in India will be free to work on the basis of principles of economic democracy or not. That is to say—a level playing field for domestic and foreign players, with no entry or exit barriers.

Globally, the retail e-commerce sector has been growing. It needs to expand in India as well, without threatening the livelihoods of small neighbourhood retailers. Growth in e-commerce can boost local manufacturing and catalyse Make in India. More importantly, the food processing sector will get a fillip, thus addressing backward linkages and infrastructure. This can be one of the major job creators in rural and urban India. Already, many small retailers are buying goods from large foreign wholesalers and selling to consumers. This is bound to increase.

E-commerce straddles various economic governance issues: international trade, domestic trade, competition policy, consumer protection, information technology (please see CUTS discussion paper at . The draft policy framework states in its preamble that it is a comprehensive policy framework for the digital economy.

Let me outline the major issues and what needs to be done.

Why did the department of commerce deal with it? It had to do so because this is an issue which is being debated at the World Trade Organization as a likely agenda for an agreement in the future. Therefore, the commerce department took the lead in understanding the issues so as to be able to present a national view at Geneva. In doing that, it went about it in a very inclusive manner, taking a whole-of-government approach. However, foreign players should also have been invited. They would not have been able to drown out the voices of the much larger number of Indian participants in any case.

Foreign versus domestic investors is another issue. Pitting the two against each other is a weak argument as our policy should be to keep the market open to investment from any source, subject to some sectoral restrictions. Concerns have been raised that large foreign companies can dominate the market through deep discounts and monopsonistic practices in their procurement from small businesses and farmers. To deal with both these issues, we have the Competition Act. Besides, the state can also be a party in lodging a case at the Competition Commission of India if it comes across any violation. Most importantly, what makes anyone think that large domestic firms wouldn’t or don’t indulge in such distortionary practices?

Some suggestions about ownership and management control are quite contrary to good practices and would only lead to policy distortions and corruption. Press Note No.3 speaks about convoluted policy prescriptions in the e-commerce sector, the likes of which do not exist in any other sector where foreign domestic investment has been liberalized. There were some concerns raised when foreigners started acquiring Indian pharma companies and private banks but those have subsided.

The third issue is RuPay versus other payment modes. The government should not promote a branded good owned by banks when there are competitors in the market. After all, the government, thankfully, does not promote MTNL or BSNL.

Data localization is the fourth issue, and a crucial one in our policy space today, particularly after the submission of the Srikrishna committee report. The draft framework mandates that data generated by users in India from various sources, such as e-commerce platforms, search engines, social media, etc., are required to be stored in India. This will neither benefit the government nor the consumers of data. The government’s objectives of accessing data for law enforcement purposes can be met without restricting the free flow of data.

The fifth issue is an e-commerce regulator. We do not need an exclusive regulator here; any anticompetitive practice can be dealt with under the Competition Act. Any anti-consumer practice can be dealt with under the new Consumer Protection Act and the Central Consumer Protection Authority to be established under it. This authority can also deal with collateral issues.

Let’s proceed without fear or favour. New laws to protect people are sometimes necessary—but let us not strangle e-commerce with them.

Pradeep Mehta is secretary general, CUTS International, and a member of the government think tank on ecommerce policy.

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