India has lost a lot by keeping out international investment over the last 7 decades through myriad restrictions and regulations.
The deliberations of the task force constituted by the Union government of India to come up with a suitable e-commerce policy have now been consolidated into a draft policy and covered widely in the media. The authors of this policy would have made the mandarins of the erstwhile Planning Commission in the 1950s and 60s very proud. While they rightfully acknowledge the potential of the digital economy now, and in the decades to come, the understanding of what the digital economy and e-commerce is all about seems to be quite muddled.
The India of today does not need a “nanny-state” treatment. The nation urgently needs to catch up, in just about every domain, with the developed world if it were to give a chance to all its 1.3 billion inhabitants to live a better life. Innovative, intelligent use of various digital technologies and platforms provide a glimmer of hope to a nation which has unfortunately missed the previous industrial revolutions and must not miss the incoming industrial revolution 4.0. With the incredible pace of change all around us, the last thing that India needs is the straitjacket of a government created “policy” which creates artificial and undesirable schisms such as scale of e-commerce businesses, ownership in terms of nationality of the key investors in such businesses, differentiation of goods sold through such businesses in terms of country of manufacture, etc.
There are several glaring anomalies and impracticalities in this draft policy. The first one is to do with the supposed distinction between “domestic” and “foreign” firms. In today’s economy, capital flows are seamlessly global. India-based start-ups, with Indian nationality entrepreneurs, require access to millions (and in some cases, billions) of dollars in funding at various stages of their growth. These funds (and in many cases, technical and managerial know-how) cannot be sourced only from resident Indian investors. Indeed, almost all the major venture capital and private equity funds raise their corpus from investors that are spread across the globe. Many of these ventures may also have a need to enter into mergers/acquisitions/divestments to other business entities who may have different ownership structures (in terms of nationality). India has already lost a lot by keeping out international investment in the country over the last 7 decades through myriad restrictions and regulations. It is high time that the nationality of investors in almost any business in India (other than, perhaps, in a very few areas relating to national defense and internal security) is no longer a matter of consideration for the Centre in normal business activity.
Secondly, it is absolutely essential to support the MSME sector. However, that support has to be provided by the Central government only by way of providing requisite high quality, cost-effective physical infrastructure and facilitating access to start-up/growth capital through suitable policy and fiscal incentives. Thereafter, it is up to the MSMEs to take advantage of a growing economy and rising consumer demand and set up/grow their businesses in tandem. Governments, in the past 70 years, have nearly killed many business sectors by creating all kinds of reservations based on scale and area of operation. Textile industry is one such example wherein the Centre’s confused thinking in 1980s-2000s prevented Indian industry to grow while China was still a relatively small player in that sector. Today, India is struggling to even compete with Bangladesh and Vietnam simply because the Centre created policy distortions. In e-commerce, for successful companies, the entire world is a potential market and many such companies can rapidly scale up from being an MSME to world scale businesses. The last thing Indian MSMEs need is government forced restraints on their scale of operation.
Thirdly, the Union government has no business to directly or indirectly exercise any kind of price control on the goods (and services) being sold to Indian consumers. There is no definition or benchmark of what constitutes a normal discount versus excessive discount. Competitors and consumers decide what the appropriate price should be. In any exceptional situation of any evidence of predatory pricing, the CCI can easily take a view and address any such anti-competitive practice. E-commerce in India, currently, is less than 2% of the total consumer spending across various channels. Surely, at this insignificant level of penetration, it cannot distort the market conditions. Indeed, even if it touches 10% penetration in a decade from now, it would still be the smallest channel of retail for the 1.3 billion relatively low-income consumers who need the lowest possible price for whatever they buy. It would have been useful if this task force had studied if any such e-commerce “policy” currently exists in any developed nation before it attempted to write one for India and thereby potentially stymie growth of e-commerce in the country.
What this task force should limit its attention to is on a few specific areas. Data protection and data privacy is a genuine challenge, and therefore the Centre should ensure this. Transparency in the ownership structure of all businesses operating in India is important so that there is no circumventing of various laws and regulations through creative corporate holding structures. There should be adequate protection to the consumer whereby the channel/marketplace through which they have bought any specific product or service is held fully accountable for remedying any genuine shortcoming experienced by any consumer post purchase. Accordingly, CCI and ministry of consumer affairs should update and upgrade their expertise to handle issues arising out of e-commerce.
The author is a Chairman, Technopak.