Digital ecosystem needs a regulatory rethink

India needs a proportionate and interoperable digital strategy to regulate the digital ecosystem

The company also provides solutions such as digital transformation, product engineering, robotic process automation, test automation, digital e-signing solutions, and more since its inception.
The company also provides solutions such as digital transformation, product engineering, robotic process automation, test automation, digital e-signing solutions, and more since its inception.

By Kamal Taneja & Anil Taneja

The IT Rules for regulating the social media, Advisory Council for Open Network for Digital Commerce, draft Consumer Protection (E-Commerce) Rules 2021 and measures to curb ‘digital monopolies’ can shape ‘digital markets’ and set a trend for their regulation.

‘Digital platforms’ have helped create new business opportunities across sectors and catalysed social development. Countrywide, there are a few thousand digital platforms operated by SMEs and some large ones run by big corporates. The larger players usually set commercial conditions in a monopolistic manner and act as a gateway for businesses to reach their customers (big tech players like Google, Facebook, Twitter, Amazon, Jio and others fall under this category).

While this may not be a desirable outcome, the broad-based approach for the regulation of digital platforms and services including e-commerce will complicate matters for digital services. Let’s take definitions relating to ‘e-commerce entity’, ‘market place e-commerce entity’ and scope & applications as provided in the proposed e-commerce Rules 2021. These definitions cover all possible economic sectors and entities like banks, capital markets, academia, health, IT services and even those auctioning commodities like tea and telecom spectrum. Such entities and their activities would get classified under e-commerce, and it will be incumbent on them to follow Regulations of Consumer Protection Act.

Such broad definitions will create confusion, and do more harm than promote transparency, access and delivery of goods and services through digital platforms. The proposed e-commerce Rules will treat every entity (Amazon, Jio Mart, Flipkart, Zomato, stationary, shoes, flower & confectionary shops and cinema tickets) on the same footing.

The Government e-Marketplace hosts about a million sellers. Over two million SMEs, businesses, artisans, weavers and craftsmen work with each of the big e-commerce companies. The requirement relating to appointment of compliance, grievance and nodal officers to respond to grievances of consumers within a fixed period will create hindrances for such SMEs and individual entrepreneurs as the delay invites penalties. Contrary to objectives, the approach of the government will ensure that only companies operating large digital platforms can comply with such regulations. It will inadvertently create monopolies.

Separate laws and regulators address unfair trade and antitrust practices. There is nothing to be gained by providing for such loose provisions in consumer protection Rules particularly when the underlying legislation (the Consumer Act in this case) is weak in such aspects of law. Consumer courts have a lot of pending cases pertaining to large companies, and the latter also delay relief to consumers by preferring appeals in higher courts.

If all stakeholders, trading through digital or non-digital means, are to retain their right to economic freedom and entrepreneurial activity based on fair non-discriminatory principles, then harmonisation of legal frameworks for the two modes of businesses is needed. This will reduce confusion, enhance legal certainty of businesses and engender business confidence. The dualism between digital and non-digital conduct is artificial, though digital transactions have some distinct features. A whole new set of regulations for the digital sector could lead to unforeseen legal complications.

Thus, prior to setting up a framework to regulate digital markets, it will be prudent on the part of the government to bring out a ‘digital strategy’ on the ‘approach to regulate digital markets’. The policy must be proportionate and interoperable, reflecting regulatory fitness with respect to domestic and cross-border trade; maintaining parity in digital and non-digital business must be the core principle. A forward-looking digital strategy, taking cognisance of digital innovations, will drive the ecosystem and also benefit every section of the society.

Authors are students of Berkley Law School and Harvard Business School, respectively

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