India: E-Commerce Deserves A Better Deal – Dua Associates

The stated goal of the present dispensation is digitisation, no
matter which vertical, e-commerce, e-payment, e-bookings, e-health,
e-education, e-land records, one can name many disciplines.
E-commerce, e-retailing is one extremely important component.

During the pandemic, the benefits of e-commerce in procuring
groceries, medicines, and other essentials, cannot be overstated.
E-commerce has also been the key to the survival of MSMEs during
the pandemic. The proposed rules will impose an onerous burden,
stifle this nascent sector, hit MSMEs hard and impact
consumers.

There have been many indirect benefits all across the sector in
terms of foreign direct investments, employment generation by
creating infrastructure, delivery systems etc. all across the
country. E-commerce has a market share of around 10 per cent of the
entire retail ecosystem. But overregulation is another way to
control or stifle competition, innovation, investments, and job
creation. Frequent policy changes are an anathema to investors who
loathe an unpredictable environment.

Since the first lockdown was announced in March 2020, MSMEs that
made the early shift to digitalisation were able to sustainably run
their business in such unprecedented times. Online marketplaces
such as Amazon, Flipkart, Reliance Retail, Tata etc saw an
unprecedented increase in listings from new sellers eager to get
into online retail when traditional avenues were forced to shut
down.

Several of these new online sellers were able to expand despite
the pandemic and achieved record sales. The fact that e-commerce
has helped families sustain their livelihoods during the pandemic
is unquestionable. These would ideally be the reasons why
e-commerce should have been in the news over the past couple of
months.

Can we really afford to let go this opportunity by indulging in
overregulation, and allow this burgeoning industry to be stifled by
internecine inter-ministerial turf wars. The answer is a clear
no.

Over the past couple of years, there have been multiple
legislations that have been introduced to regulate e-commerce
leading to fears of this sector being overregulated. Further, the
existing major players are being subjected to different regulations
with multiple compliances every year. There are several arms of the
government either making or in the process of making regulations to
govern e-commerce.

There is need for an authority which coordinates holistically
all aspects of e-commerce, which possible would include consumer
interest, FEMA/FDI, aspects, country of origin etc. There must be
one set of comprehensive rules to encompass the e-commerce vertical
by a nodal Ministry or a department like the DPIIT.

The one at the forefront are the amendments proposed to the
Consumer Protection (E-Commerce) Rules, 2020 by the Ministry of
Consumer Affairs. Some of the highlights of these Draft Rules
include banning flash sales, mandatory listing of country of origin
of every product listed on marketplaces, providing information to
government agencies with 72 hours of them asking for investigation
purposes, having a domestic alternative for every foreign product
sold.

The proposed rules are not only extremely labour intensive but
are also against free market principles. While the goal of these
rules is to protect and further the interests of the consumer, it
has been met with a negative response from the e-commerce ecosystem
because of the massive increase in compliance costs. Consumers too
have found the regulations unfriendly as they will most definitely
lead to increase in prices of products online.

A minor issue which is getting lost in the din of these
amendments is the reciprocity in other jurisdictions. Other
countries might follow the tit-or-tat policy. The government can
ban products from one specific country if the reasons are
legitimate, but not from all countries. The identification, if at
all, should be on the basis of exclusion and not inclusion.

The Department for Promotion of Investment and Internal Trade
(DPIIT) is also in the process of regulating the internal workings
of e-commerce companies and have in the past sought details of
volume of business, investments, and commission agreements. The new
draft rules have mandated that all e-commerce companies register
with the DPIIT. The DPIIT also ensures that e-commerce companies
comply with the GST Act.

Additionally, the Foreign Exchange Management Act (FEMA) governs
e-commerce entities (big and small) that have raised money from
foreign investors. FEMA and the FDI policy impose a plethora of
compliance obligations on entities that fall within their scope.
E-commerce companies have to abide by those in any case.

Overregulation of e-commerce at this time may have major macro
level adverse effects on a country already reeling from the
debilitating effect of Covid. And the first to fall prey will be
MSMEs.

Moreover, the draft rules require e-commerce entities to
compulsorily appoint a Chief Compliance Officer and a nodal contact
person for 24×7 coordination with law enforcement agencies. For a
small company that is just starting out, the expense of hiring such
mandated persons can kill entrepreneurship before it even
begins.

Further, sellers on big platforms from small towns with a
non-technical background will just not be able to keep up with the
increased compliances that are being proposed and will be forced to
drop out of these platforms.

At a cursory glance it does seem like that there is a turf war
going on between various government bodies as to who can regulate
e-commerce more, and it seems as if all of them are competing with
gusto. In the end it is the consumer who will bear the brunt as
prices of products will rise due to increased costs of compliance
and operations and restrict choices.

The government needs to take a hard look at all the regulations
that are being proposed from the point of view of an e-commerce
retailer and will need to dilute them significantly to ensure
online retail does not stall at such a crucial juncture.
Regulations are important, but they must be done on a pragmatic
basis, by one Nodal Ministry, so that macro level adverse effects
are minimised.

The proposed e-commerce regulations are reminiscent of the days
of command and control which thankfully ended in 1991.

This article was first published in The Hindu Business Line
on 22nd July 2021

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.