DRAFT E-COMMERCE POLICY OF INDIA

By :– Manish Bhojwani

C.S. cum Advocate

BCom, CS, LLB

CS since 8 years

INTRODUCTION TO E-COMMERCE INDUSTRY

In August 2019, the Government of India has placed the much awaited draft E-commerce policy for the comments of the public. BETTER LATE THEN NEVER. India is a growing economy with a potential of becoming the second largest economy of the world by the year 2030. E-commerce will play an important role in growth trajectory of India looking at the consumer base it has, being the youngest population in the world.

Looking at the E-Commerce industry analysis, it is expected that about 175 million consumers will start shopping online by the end of 2020 as compared to the existing 120 million consumers in 2018. The revenue of the E-Commerce industry is expected to grow to USD 200 billion by 2026 from USD 38 billion in 2017. This growth is expected to be triggered due to the increased trend of internet usage and smartphone penetration across the country. In the year 2019, over 1,00,000 units each of 20 new models of smartphones were sold across the country. India’s internet economy is expected to double from USD 125 billion as of April 2017 to USD 250 billion by the end of 2020, growing at the rate of 51%, which is highest in the world.

In the recent past, we have seen some major developments in E-Commerce sectors such as –

• Flipkart, after being  acquired by Walmart for USD 16 billion in 2018, it is been expected that it is planning to launch more offline retail stores in India to promote private labels in segments such as fashion and electronics. In September 2018, Flipkart acquired Israel based analytics start-up Upstream Commerce that will help the firm to price and position its products in an efficient way.
• Paytm has launched its bank – Paytm Payment Bank. Paytm bank is India’s first bank with zero charges on online transactions, no minimum balance requirement and free virtual debit card.
• Reliance retail has launched its online retail last year.
• E-commerce industry in India witnessed 21 private equity and venture capital deals worth USD 2.1 billion in 2017 and 40 deals worth USD  1,129 million in the first half of 2018.
• Google and Tata Trust have collaborated for the project ‘Internet Saathi’ to improve internet penetration among rural women in India.

Apart from private sector’s contribution in the growth of E-Commerce industry, the Government of India has also taken some initiatives which are contributed in the upward movement of the graph of this sector. Some of the initiatives are:

• The constant boost to “Digital India” initiative has provided a push to this sector. The Govt. has introduced various initiatives such as Udaan, Umang, Digi Locker, Start-Up India portal etc.
• Easing of FDI in E-Commerce has attracted foreign players in this sector. Govt. has allowed hundred percent (100%) FDI in E-Commerce marker place model.
• Govt. is spending huge money in laying down fibre for 5G network which will increase internet usage and its efficiency.
• Govt. is ready to heavily invest in BharatNet Project viz MahaNet. As part of BharatNet Phase II, MahaNet aims to digitally connect nearly 13,000 gram panchayats with blocks through underground, aerial optical fibre, and extend the broadband connectivity to all the gram panchayats using IP-MPLS technology-based products.
• Consequently, for the first time in history, India has made into the list of top 100 countries in UN’s E-Government Development Index jumping from 107^th position in 2016 to 96^th position in 2018. This shows the direct correlation national economy and e-governance.

It is imperative for the country like India to pay attention to the requirement of regulating an E-Commerce Industry. With the increase of MSME participation in overall national product, it is altogether necessary for them to achieve cost effectiveness and to compete with established business houses; there is a need for regulated E-Commerce market so that there is a level playing field for all. The upward trajectory in E-Commerce industry is expected to let India surpass USA to become second largest E-Commerce market in the world by 2034. Technology enabled innovations such as digital payments, integrated logistics, analytical driven customer engagement and digital marketing and advertisements will help boosting the E-Commerce industry. The growth in E-Commerce will boost employment, increase tax collections, effective control on counterfeits and transparency for the market players as well as the consumers. Looking at the potential of E-Commerce industry in India, it is a welcome intent of Govt. to introduce and implement a policy which will regulate the industry and create a level playing field for its players keeping main focus on protection of domestic market especially medium and small enterprises.

BIRD’S EYE VIEW OF DRAFT E-COMMERCE POLICY:

The Draft E-Commerce Policy is divided into six aspects:

S. No.	Aspect	What policy says?
	Data	Data can be used to understand the consumer preferences. Artificial Intelligence and Big Data have taken the use of Data to next level of ‘Deep Learning’.Data plays very important role in success of the enterprises.Use of algorithm to dig out vast unstructured data from various sources.Data capital is considered no less than Intellectual Property.Individual owns rights to his data.The data of a country is its National Asset that government hold in trust.Sovereign right over Data.No access of Data to non-Indians.Restrictions on cross border data flow.Several conditions on entity that collects Data in India and stores in abroad (para 1.2 of draft)Sharing of community Data for the benefits of Startups and firms.
	Infrastructure Development	Aim is to take forward the core elements of “Digital India” initiative.Development of capacity for Data storage within India.Data Centres, server farms, towers and tower stations, optical wires, signal transceivers, antennae etc. will be accorded ‘infrastructure status’.Domestic alternatives to foreign based clouds and email facilities will be promoted.
	E-Commerce Marketplaces	E-Commerce marketplaces has lead to development of logistics industry and created more jobs.Greater access to consumers.Restriction to continue over Inventory based models.Online marketplaces to refrain from adopting discriminatory business modelsAll E-Commerce sites / apps to have registered business entity in India.Many anti-counterfeiting measures are suggested.Anti Piracy measures.
	Regulatory Issues	Regulatory or policy changes must be prompt to answer the call of changing scenario of e-commerce industry.Assessment by various Ministries regarding impact of e-Commerce.“Infant Industry” status to startups and MSMEs to take advantage of Data.Policy suggests reviewing current moratorium on custom duties on transmission of Data between countries.Content Liability on platforms operators.
	Stimulating the Domestic Digital Economy	Two out of three people in India does not have access to internet which is required to develop e-commerce industry.Delivering government services digitally.E-Commerce to be part of National Integrated Logistics Plan.
	Export Promotion through E-Commerce	E-Commerce is important in cost reduction in marketing, advertising and improves outreach.Online sales model to promote export.

The draft policy is inter disciplinary in nature because it has touched upon right from policy formulation, implementation upto the law required to enforce the level playing field in E-Commerce. There is an intention to fill the vacuum by proposing to have a regulator for E-Commerce Industry which not only regulate the market in its correct spirit but will represent India in various international forums such as WTO for E-Commerce work programmes etc. Some of the experts are of the opinion that the policy dictates “Protectionism” for Brick and Mortar stores rather than providing level playing field to all players on E-Commerce.

The main objective of the E-Commerce policy is seems to be shaping of overall economy through reforms, level playing field, prevention of market disruption and controlled protection for MSMEs. This policy is inclined more towards DATA which has been referred to as National Asset and stress has also been given to Data Localisation i.e. restriction of flow of Data outside India. This policy will have positive effect on job creations, control over ‘first mover’ advantage, healthy competition, control over predatory approach to cover market share and improvement in Ease of Doing ranking of India.

INDIA’S E-COMMERCE VIS-À-VIS DEVELOPED COUNTRIES

Current status of Global Connectivity:

The usage of internet has seen a robust growth from 1990s. It has evolved since last decade with increased speed and accessibility. In 2014, approx 1,10,000 e-commerce websites generated revenue worldwide, while in 2016 the number reached more than USD 1 million. It has major role to play in economic growth, expanding employment, smoothening the transformation and upgrading of traditional industry.

E-Commerce has shown a variety of forms of expansion in order to meet the needs of difficult period. There different kind of market models:

1. Business to Business (B2B)
2. Business to Consumer (B2C)
3. Consumer to Consumer (C2C)
4. Online to Offline (O2O)
5. Consumer to factory (C2M)

China, the USA, UK, Japan and Germany are the top five countries of largest B2C E-Commerce market. Alibaba, Amazon and ebay shares 50% of B2C E-Commerce business.

According to Global Cross Border B2C E-Commerce Market Outlook Report, the size of the cross border e-commerce market has exceeded USD 230billion and it is expected it will reach USD 994 million by the end of 2020 growing at a rate of 27%. Internet has a major part in growth of E-Commerce. Below table will show internet penetration in BRICS countries in 2016:

Country	Internet Penetration
Russia	71.3%
Brazil	63.6%
China	52.9%
South Africa	44.5%
India	34.8%

Let us discuss India’s E-Commerce market comparing with E-commerce market of Russia and China:

INDIA:

Market Trend:

1. E-Commerce was benefited with demonetization by the Govt. and witnessed huge surge in online transactions.
2. The market was largely duopolistic with Amazon and Flipkart at the forefront but now many players are emerging such Paytm as a strong challenger.
3. Online food segment has bounced back due to increases internet usage and cheap smartphones.
4. Online travel booking is booming and emerged as a potential segment for e-travel companies.

Key Drivers:

1. Rising no. of internet and Smartphone users fueling m-commerce, especially from semi-urban areas.
2. Increase in funding by investors, which stood at USD 8.5 billion in 2017.
3. Robust Logistics infrastructure, to be further strengthened by GST implementation.
4. Favorable policies allowing 100% FDI attracting more foreign players and investment.
5. Convenience through home delivery, discounts, better product range etc.
6. Changing demographics, which include more of nuclear families, a growing female workforce and young people who shop online.
7. Cashless society leading to the growth of online transactions, which grow 80% after demonetization.

RUSSIA:

In Russia, only one third of the population benefits from e-commerce opportunities. Russian online market is the perfect example of “Pareto Principle” where 5% of online stores generate 90% sales turnover. The Federal Law is in force for collection, processing and storage of personal data of the citizens but there is no law impersonal data. Recently many new bills have been introduced for ‘crowd funding’ and ‘crypto currency’. However, the E-Commerce in Russia is still has few challenges to overcome. These challenges, just to name of few, are:

1. Promotion of international trade and SMEs.
2. Cooperation between E-Commerce platforms, public authorities and export support institutions.

In our opinion, India’s E-Commerce Industry is on a better footing than Russia in following factors:

1. India has regulated foreign exchange regime.
2. Russia has put restriction on use of e-money in B2B transactions which is not the case in India, although India is moving towards cashless economy.
3. There is a limit on personalized e-wallet transactions in Russia.
4. India has Money laundering regulation in place supported with executive functionaries for implementation.

CHINA:

In China B2B e-commerce is growing by 26.67% on Y-o-Y basis with increase in revenue scale of 42.14%. B2C and C2C market is growing at the rate of 32.2%. Some notable key players are Taobao, JD, Vipshop, Alipay and Tenpay. China is much more ahead of any other country in the world when it comes to cross border e-commerce market which is increasing by 80% on Y-o-Y basis.

China has already in place many laws and regulation for E-Commerce being aware of the potential growth of this industry in world most populated country. There are number administrative measures and liability laws are in force for network trade, e-payments and protection of Intellectual Property.

MSMEs in China have major role in economic growth being 40 million in number of SMEs enterprises, accounting for 99% of number of enterprises, contributing 60% of GDP, 50% of tax revenue and 80% urban jobs. Like India, Chinese SMEs also facing several challenges such lack of infrastructure, cost of online transactions, predatory approach of big players, nascent logistics and lack of skilled professionals.

INDIA’S DRAFT E-COMMERCE POLICY, WTO AND DEVELOPING COUNTRIES:

E-Commerce has now become a formidable part of negotiation for members of WTO. It was in September 1998 when ‘work programme’ for e-commerce was adopted. However, this work programme has no noticeable achievements except moratorium on custom duty on electronic transmission. The developed members of WTO are focusing on global rules for e-commerce transactions of goods and services and intellectual property rights, the developing members are concerned about their domestic market if they agree to open the e-commerce market at world level.

India, along with South Africa and other developing countries is opposing the rule based e-commerce trade regime whereas the other group comprising of US, EU and Japan are arguing on free data flow, no data localisation and no disclosure of source.

India’s argument is based on the proposition that developing countries are not well equipped with electronic infrastructure to take benefits of open global e-commerce regime. These countries need to time to build capabilities, corresponding regulatory framework to control the outflow and inflow of tremendous electronic traffic of goods and services. The developing countries also need to have a focused and balanced policy for protection of Intellectual Property Rights. There is a fear that open global e-commerce market will allow giants global techs to take over the market and it could affect the domestic retail sector. The Government has to push domestic players to adapt to an open environment before consenting to allow rule based e-commerce global market.

The current version of draft E-Commerce policy does not neither seem to address the above concerns nor resorting to any solutions which enable India to become a major role player at WTO talks on E-Commerce policies.

LAWS OF E-COMMERCE:

Growing advent of E-Commerce has lead to new innovative ideas in electronic world. The future of electronic will be Artificial Intelligence, Big Data, Deep Learning and Cutting Edge Technology. The current laws or regulatory regime is not ready for these daily-new-technology inventions. The draft policy does not to talk much about changes or introduction of rules or laws but this cannot be ignored.

Information Technology Act:

The laws which could touch base upon E-Commerce Industry are Information Technology Act, 2000 where punishment for the offences is not stringent and offences are bailable in nature. In 1996, a Model Law on E-Commerce was adopted by UNCITRAL which was subsequently adopted by General Assembly of United Nations. India being signatory of Model Law enacted Information Technology Act, 2000 and also to give effect to the UNCITRAL law of e-signature, India enacted Information Technology (Amendment) Act, 2008.

Privacy breach is another challenge in E-Commerce due to increased online payments and usage of mobile banking apps, the confidential credentials are subject to ‘fishing’ by fraudsters. Although, India Penal Code and Information Technology Act do provide for punishment for such acts but the execution of such provisions is not up to the mark.

Consumer Protection:

Another piece of legislation which is important is Consumer Protection Act. As we have seen the boom in number of online consumers / shopper, it is all the more important to strengthen the consumer forums with qualified personnels and move towards transition to online redressal grievance. The police administration has to be trained to handle the cyber crime cases as these crimes involves expertise and technology which can be tempered very easily and criminal can easily erase traces.

Intellectual Property Rights:

Another important is protection of intellectual property rights. Copyright for e-commerce software, designs, contents, graphics, music and videos. Trademarks of business name, domain name, logos that differentiate e-commerce brands. Patents for source code, algorithms, programs and technical descriptions. If we talk about content regulations, there are issues regarding obscenity issues and defamation issues.

Indian Contract Act

E-contracts with “I accept” tab and ‘Browse wrap’ create an implied contract with no scope of negotiation between the parties. The problem comes when there is a dispute. The question comes how far the standard form e-agreements are enforceable for specific performance when it does not fulfill the conditions of valid contract as per India Contract Act. The Indian jurisprudence is not developed on these issues as compared to US or EU.

Foreign Direct Investment:

100% FDI in marketplace model of e-commerce is allowed whereas no FDI is allowed in inventory based model of e-commerce. The basic objective to keep inventory based model is to protect the domestic market which could had been hampered by big e-commerce players. But still with the aid of ‘data effect’ and ‘network effect’ the giant techs are able to capture major market share irrespective of restrictions imposed under new FDO guidelines.

INDUSTRY VIEWS ON DRAFT E-COMMERCE POLICY:

1. The policy is encompassing six different aspects which makes its objective and aims very wide and over-reaching. It should have been focused on two points (i) e-commerce regulation in terms of FDI and (ii) how to make India’s position stronger at WTO talks.
2. The policy’s major stress is on Data which is referred as “National Asset”. Data localisation has been prescribed which will counter the strength of big corporate which are working on data flow and their business model is based on sharing of information. However, the policy is not clear on the modalities of data storage and who would control or manage the huge data resource across the country. Going one step ahead, this policy suggests putting restriction over cross border flow of data.
3. The policy has suggested to give an Individual right of consent for access to personal data, Government being a fiduciaries hold the data in trust. The question arise that what is the connection between localisation of data and access to data?
4. The policy talks about level playing field and tilted more towards protectionism for domestic retail players. Is it not unfair towards competition and ability of e-commerce entrepreneurs to achieve success based on their abilities and ideas?
5. The policy has also touched upon digital infrastructure which will be backbone if the objectives of this policy need to be achieved. Before, building digital infrastructure Government has to upgrade basic infra such as electricity, optic fibre connections to increase bandwidth, high quality IoT and educating more skilled IT personnels.
6. Another issue which is daunting is that every e-commerce website and application available for downloading in India must have a registered business entity in India. Who knows how India will be ranked in ‘ease of doing business’ after this provision is implemented. Now days a hundreds of websites or applications are available to the consumer which is for their convenience. If government demands them to have a registered entity in India, it seems that the message is clear – share what you earn!!This provisions although is welcomed by MSMEs because this will lead to less competition in domestic market.
7. The policy demands from the platforms to seek authorization from trademark owners before listing high value goods, cosmetic and goods having impact of public health. And how this is possible for small time seller of e-commerce platform to take authorization from trademark owner when he himself is purchasing the product from open market and how it will possible for platforms to restrict selling of counterfeit?
8. The policy understand that various enactments or amendments has to be made in tax laws, small enterprises regulations, start up policies, consumer protection law, payment systems, content liability and environment but does not provide any roadmap for the same.

CONCLUSION

E-Commerce industry is eagerly waiting for final policy which will bring more clarity and enable e-commerce players to prepare for the challenges. But it is very clear that the policy will give benefits to consumer, domestic retailer and MSMEs which are vulnerable to the schemes of big corporate who through ‘capital dumping’ restricts the entry for new players. The policy is expected to strengthen India’s position at global stage and WTO as a country to have regulation on E-Commerce, once it comes into force.

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1. Submission of Comments on DIPP’s Draft E-Commerce Policy by Digital Empowerment Foundation.
2. https://www.littlelawbook.com/e-commerce-in-india/

• https://www.researchgate.net/publication/330845555_E-commerce_Laws_and_Regulations_in_India_Issues_and_Challenges

• https://www.thehindu.com/business/Industry/indias-e-commerce-war-of-sales-and-claims/article29598489.ece

• https://www.thehindu.com/thread/politics-and-policy/reading-into-indias-draft-e-commerce-policy/article28513974.ece

• BRICS plus E-Commerce Development Report in 2018, United Nations Industrial Development Organisation (UNIDO), Shanghai Academy of Social Sciences.

• https://www.ibef.org/industry/ecommerce.aspx

• Policy Issues in International Trade and Commodities Study Series 2, by Arvind Panagariya, Professor of Economics, Co-Director, Centre of International Economics, University of Maryland.

• https://dipp.gov.in/sites/default/files/DraftNational_e-commerce_Policy_23February2019.pdf