The right policy cart

E-commerce rules should be stable and equitable

Formulation of a national e-commerce policy is a welcome move as it will serve as a reference point for the online retail industry. But the draft policy needs further consultation before it is finalised as a rulebook for e-commerce — a tiny fraction of the $700-billion retail market. In the current form, it neither shows any sign of a stable regulatory regime nor policy predictability — both necessary for companies to do business in a competitive environment. The draft policy talks about several things in an attempt to bring a level-playing field in the e-commerce or e-tailing industry. For instance, it advocates equal treatment of all sellers and cautions platform owners against creating algorithms to prioritise select vendors.

Indeed, a good and equitable policy is required for a level-playing field. But that should not apply just to sellers; it must extend to marketplace platforms as well without differentiating between foreign and domestic, big and small. This will help check violations by companies, many of which adhere to the current guidelines specified through Press Note 2 only on paper, while their business transactions breach the law of the land. The proposed policy, which has been in the making for years, must correct the anomaly to improve business compliance in the industry. Thus, some conditions in the draft policy need to be reviewed. One is about asking e-commerce companies of significance to fulfil additional compliance requirements. The government must find an answer as to why this clause is required and if it will apply only to foreign firms. Another clause states that the government will notify from time to time what constitutes associates and related parties. Such a clause is sure to make the regulatory environment unpredictable, and should be avoided. Instead, the government should define related parties and stick to that for some time, giving large marketplaces confidence to continue investing billions of dollars.

The retail sector, including e-commerce, has been caught in a policy logjam for long. In e-commerce, for example, only Indian-owned companies can follow the inventory model—own products and sell them directly to buyers. Foreign e-commerce companies are only allowed to set up marketplaces with multiple sellers transacting with buyers. So, to begin with, the playing field has been uneven in e-commerce. On top of that, Press Note 2 issued about three years ago imposed further restrictions on foreign online firms. It states that a marketplace e-commerce company or its group company can’t hold equity in a vendor or control the inventory of a vendor. Also, any sale more than 25 per cent by a single seller on a marketplace platform is prohibited.

Globally, e-commerce specific guidelines are rare, the only exception among large economies is China. Elsewhere in the world, companies can choose to follow an inventory model or a marketplace format or a mix of the two as international majors like Amazon do. In the new e-commerce policy, India must correct some of the past inconsistencies in order to give a boost to the industry pegged at just around $25 billion (only for online shopping) — far from a monopolistic business. There are some positive points as well in the draft policy such as enabling offline mom and pop stores to go online and bringing e-commerce exports on a par with offline exports. The policy should focus on such proposals, rather than trying to protect a certain segment of business through an uneven and unpredictable regulatory regime.