A regulated India for Flipkart, Amazon: Here’s what draft policy means for $125 billion e-commerce market

Published: November 29, 2018 8:15:54 PM

The Draft Policy also intended to strike a balance between certain conflicting interests particularly in light of the export of digital services from India, and India’s trade commitments.

IBEF contends that this has enabled the online retail sales in India to grow by nearly 31% to touch US$ 32.70 billion in 2018, led by Flipkart, Amazon India and Paytm Mall.IBEF contends that this has enabled the online retail sales in India to grow by nearly 31% to touch US$ 32.70 billion in 2018, led by Flipkart, Amazon India and Paytm Mall.

By Punit Dutt Tyagi 

E-Commerce has been one of the key transformative agents for business in India This digital transformation along with a slew of government actions has propelled India as one of the leading markets for digital services.

As per the IBEF, the Indian e-commerce market is expected to grow to US$ 200 billion by 2026 from US$ 38.5 billion as of 2017. The spectacular growth of the Indian smartphone market and its high penetration, launch of 4G services, and decrease in bandwidth costs are being seen as contributing factors to the growth of the internet economy in India, which again is projected to double from US$125 billion as of April 2017 to US$ 250 billion by 2020, majorly backed by e-commerce.

IBEF contends that this has enabled the online retail sales in India to grow by nearly 31% to touch US$ 32.70 billion in 2018, led by Flipkart, Amazon India and Paytm Mall.

Government action regarding e-commerce:

The Government of India has been leveraging the improved online infrastructure and increased Internet connectivity for its various Digital India initiatives bringing better accessibility of government services to citizens. With the recent boom, India has also now turned its attention to the e-commerce market.

Seeing the importance of the e-commerce industry, the Ministry of Commerce in August this year had circulated a Draft national policy framework option for e-commerce in India (Draft Policy). The objective of the Draft Policy was multi-fold. The Draft Policy intended to encourage and facilitate environment for e-commerce, fair environment for domestic digital firms while at the same time enabling innovation and access to technology.

The Draft Policy also intended to strike a balance between certain conflicting interests particularly in light of the export of digital services from India, and India’s trade commitments.

The Draft Policy also touched upon a number of other aspects such as data localization, data related services, and consumer protection. Although the intended coverage of the Draft Policy is quite broad, it is clear that such a unification cannot be done by way of a sole legislative/regulatory source for all e-commerce related issues.

Data Localization – Hit or miss?

The Draft Policy attempts to make a strong case in favour of data localization in India, but without any substantial basis. The Draft Policy also proposes that such data which is locally available within India would be available for access by start-ups and to the Government when required in the interest of national security.

While showcasing the examples of Facebook and Google, the Draft Policy highlights the strategic and economic importance of data analytics as an industry in India. The Draft Policy also notably proposes that start-ups may be exempt from any data localization obligations but does not provide any basis for such an exemption.

The push for data localization for use in data analytics, however, appears to be conflicting with the Srikrishna’s Committee’s Report and the draft of the Data Privacy Bill which is pending before the Parliament. More specifically, the Privacy Bill mandates that consent is prerequisite for use of any personal data, thereby limiting the use of such data only for purposes for which consent was specifically obtained.

These deviations have to be reconciled so that the Draft Policy eventually conforms with the Privacy Bill.

Greater Role of CCI, DoT and Better Protection for Consumers

The Draft Policy recognizes the possibilities of anti-competitive practices in e-commerce, especially in e-retail businesses. The Draft Policy proposes a two-pronged approach involving implementing appropriate regulation for ensuring a competitive environment within the e-retail sector and introducing suitable amendments to existing legislations which are better tailored to the e-commerce/e-retail sector.

The Draft Policy has proposed passing of legislative frameworks for controlling and preventing unsolicited calls/messages (spam) which has to be overseen by the Department of Telecommunication.

The Draft Policy acknowledges the role of consumers which lies at the heart of the e-retail sector. To this end, the Draft Policy imposes an obligation onto the e-retail entities to fully disclose their arrangement with various vendors.

The Draft Policy also proposes to establish a Central Consumer Protection Authority (CCPA). The CCPA is intended to serve as a registration authority for e-commerce entities. The CCPA is also intended to serve as a platform for lodging complaints by e-commerce regarding fraudulent activities and also to allow consumer to register unresolved complaints.

It is pertinent to note that the IT Act, 2000 does provide for an adequate investigative mechanism against fraudulent activities. Furthermore, the Consumer Protection Act, 1986 also provides a consumer redressal framework for lodging consumer related complaints. With existing and active legislations already in these respective domains, it remains unclear as to the need for a new authority.

Glaring Negatives and Omissions

The Draft Policy also proposes to amend section 79 of the IT Act, 2000 to modify the exemption provided for e-commerce entities (as intermediaries). While proposing such an amendment to the aforementioned section the Draft Policy refrains from providing the extent of such revisions nor provides any reasons.

If the liability of the intermediaries under section 79 is enhanced, it may result in unnecessary/frivolous complaints against bigger e-retail platform with the aim of extracting more monetary relief.

The Draft Policy in one instance states that factors such as network effects and access to data would be considered for assessing competitiveness of e-commerce entities. The Draft Policy, however, does not explicitly mention net neutrality and keeps that questions open. The recommendations of the TRAI in this regard had been approved by the Department of Telecommunications earlier this year. Net neutrality is critical for any digital empowerment of the masses in general.

The Draft Policy, although following very late considering such regulations were passed by EU in 2002, are key in ensuring that the vision of Digital India is realized. This has to be done by reconciling different legislations, such as the IT Act, Competition Act, Consumer Act, Tax laws, etc., and cannot be done through a single legislation. It remains to be seen as to how such developments will eventually unfold.

(Punit Dutt Tyagi is Executive Partner at lawfirm Lakshmikumaran & Sridharan Attorneys. The views are the author’s own.)

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