Worth the Debate: Dissecting the draft e-commerce policy

by Supratim Chakraborty and Suhana Islam

American philosopher, Noam Chomsky once remarked, “there’s a tremendous gap between public opinion and public policy”. This seems to be especially relevant today, given the ongoing debate on the proposed draft national policy framework on e-commerce. This draft policy is an ambitious step towards greater regulatory control in the digital space.

The e-commerce landscape is growing exponentially across the world. India’s e-commerce market is expected to grow to USD 200 billion by FY 2027 from USD 15 billion in 2017, positioning it as a very attractive investment market. With such robust growth prospects, it was only time that the Government realized the existing legislative lacuna governing national and cross-border e-commerce transactions.

Presently, laws governing e-commerce are spread across varied legislations such as the Information Technology Act, 2000, the rules framed thereunder, the foreign direct investment (FDI) policy, etc. Consumer disputes relating to online sales are often treated at par with offline sales. The draft policy aims to provide one comprehensive policy framework for e-commerce in India and is commendable in this regard. The Draft Policy, however, is facing immense resistance from several quarters, such as trade associations, retailers, certain government departments and ministries, owing to some of its far-reaching implications.  Set out below are five key issues that we think, merit further detailed deliberation by the Government and stakeholders.

Making data localisation mandatory may not be as straightforward

The Draft Policy provides for a two-year sunset period before data localization is made mandatory. It mandates the following categories of data to be stored exclusively in India:

  • community data collected by IoT devices in public space, and
  • data generated by users in India from various online sources such as e-commerce platforms, social media, search engines, etc.

Further, the draft policy makes it necessary for data stored in India to be shared with startups meeting certain stipulated criteria (such as turnover of more than INR 50 crores).

This proposal seems to be somewhat in sync with the recently released draft Personal Data Protection Bill, 2018 and may eventually lead to the creation of superior data storage infrastructure in India. However, implementation of this proposal could result in undue hardship to e-commerce entities operating in the micro, small and medium enterprises (MSME) sector.

Further, the rationale for the requirement of compulsory sharing of data with certain startups, and the methodology for arriving at the stipulated criteria vis-à-vis such start-ups are ambiguous and requires further clarity from the Government.

What is the objective behind the policy prohibiting FDI in inventory-based models

The draft policy seeks to strictly implement the provisions of Press Note-3 of 2016 (PN-3). PN-3 sets out guidelines for FDI in e-commerce and generally, prohibits FDI in inventory-based model of e-commerce. The e-commerce policy hopes to implement this by creating a separate Enforcement Directorate wing to monitor non-compliances. Further, it permits FDI up to 49% in limited inventory-based B2C model, provided that the entity is owned and controlled by resident Indians and sells locally produced goods only.

The strict implementation of PN-3 has been a contentious proposition, given that the distinction between the marketplace model and the inventory-based model is increasingly getting blurred. Also, the proposal to open the inventory-based model conflicts with the provisions of PN-3. The Government will need to clarify its policy objective in this regard.

The policy may spoil the party by stopping sales and deep discounts

The Draft Policy seeks to prohibit bulk purchase of branded goods/ fashion and white goods by related party sellers, thereby eliminating price distortions in the marketplace. Further, it proposes a sunset period to mark an end of deep discounts offered by e-commerce platforms.

Offering deep discounts and bulk purchases by related entities seem to be a key strategy for e-commerce players in India, often giving a push to online sales in a still-developing market. It is easy to see why online retailers would view this proposal with apprehension. The Government will have a challenging road ahead as e-commerce giants will undoubtedly try to negotiate for a more accommodating policy.

More power to the CCI, but is it justified

The draft policy aims to provide greater teeth to the Competition Commission of India (CCI) by allowing the regulator to even examine e-commerce combinations that qualify for the de-minimis exemption (i.e. value of acquired assets not exceeding INR 350 crores in India or turnover of not more than INR 1000 crores in India), which would otherwise be outside its purview.

Compromising the de-minimis exemption for e-commerce entities will increase regulatory burden for Mergers & Acquisition activities in this sphere. One must assess whether such CCI intervention for an otherwise exempt transaction will actually be beneficial in the long term.

E-commerce customer complaints to have a new regulator

A new regulator called the ‘Central Consumer Protection Authority (CCPA) is proposed to be established to deal with inter alia intra-government co-ordination, to act as a redressal forum for unresolved consumer complaints and for e-commerce operators for complaints regarding fraudulent activities, etc.

The role and requirement of the CCPA are ambiguous and confusing, especially since the distinction between the CCPA and the existing consumer dispute redressal fora under the Consumer Protection Act, 1986 is not clarified.

In conclusion

Despite its shortcomings, the Draft Policy, if framed right, can pave the way for a more cohesive and level playing e-commerce sector, benefitting small players and global giants alike. It remains to be seen now, if the revised draft policy that is proposed to be issued by the Department of Commerce shortly, lives up to the expectations and eventually succeeds in accelerating India’s e-commerce growth story.

Supratim Chakraborty is Associate Partner and Suhana Islam is Principal Associate at Khaitan & Co.