Tripping e-commerce

Draft policy focuses on more controls

The draft national e-commerce policy makes a few cogent points such as setting up a separate sector regulator and the centralisation of goods and services tax filling, which can reduce paperwork considerably. A separate cell to process foreign direct investment might also expedite investment. However, the main flaw of the policy is that it seems to have been designed to establish stringent controls on this nascent sector rather than enabling growth. The concept of a so-called sunset clause for discount pricing strikes a very false note and harkens back to the days of the licence raj, especially in terms of micro-management by the government. 

There is no logical reason why the government should get involved in setting price controls or setting limits on the period for which a discount may be offered. Apart from violating free market principles, this sort of price control would also be inconsistent with policy in other key sectors. For instance, telecom service providers have been allowed to provide heavily discounted schemes and indeed, to offer free services for extended periods. It may be argued that the e-commerce sector is a major beneficiary of falling telecom costs. If those overheads have eased for e-commerce, why shouldn’t marketers be allowed to pass on the benefits as they please?

Making things worse, the policy might result in the e-commerce sector seeing a significant rise in costs thanks to the need to localise data storage and processing. Data and big data analysis are key to running successful e-commerce operations. But India doesn’t possess either server capacities at the required scale or the desirable broadband speeds to deliver cost-effective and efficient data storage and processing services. Substantial costs are also associated with reworking the value chains where data localisation is concerned. None of this covers the security-related issues that such localisation would throw up.

Another bad idea is the proposal to allow inventory-based marketing, which might appear progressive at first glance. There are just too many caveats. There are few, if any, goods, which will meet the criteria of being 100 per cent Indian if value chains are examined end-to-end. Nor does it make much sense to give permission for inventory-based marketing only to companies with resident Indian managements, and 51 per cent local shareholding. The added proposal of preferential voting equity favouring Indians is regressive. On the payment side, pushing RuPay is understandable enough. But consumers should be allowed to retain the choice to pay for their transactions via any other transparent means that they wish to employ.

The e-commerce sector currently accounts for a tiny slice of India’s retail market, which is estimated at about $700 billion. If one goes by the Economic Survey estimates, e-commerce is worth about $33 billion, or less than 5 per cent of the retail market. It is clearly at a stage when light regulation should be the order of the day. Instead, the segment is already hemmed in by many restrictions, both on the investment side as well as in terms of not being allowed to carry out inventory-based marketing, etc. The draft policy proposes to add some more restrictions.