UPSC MAINS 2019: Draft e-commerce policy

Draft e-commerce policy - Keeping our data safe and secure

 

Topic: Draft e-commerce policy: Keeping our data safe and secure

Topic in Syllabus: General Studies Paper 3 : Indian Economy

 

Draft e-commerce policy - Keeping our data safe and secure

Context:

The Department of Industry and Internal Trade recently released the draft National ecommerce Policy that sends a clear message that India and its citizens have a sovereign right to their data. Final policy will be issued based on inputs.

 

E-Commerce meaning:

Electronic commerce is popularly known as e-commerce. An e-commerce business model “enables a firm/individual to conduct business over an electronic network, typically the Internet.” The consumer and seller or service provider interaction gets better and efficient.

 

E-commerce India:

  • E-commerce may be carried out for both wholesale trade or for retail trade (sale towards final consumption).
  • It can be either Business to Business (B2B) trading or Business to Consumers (B2C) trading. T
  • There is no restriction on conducting e-commerce per se in India. However, certain restrictions exist, if e-commerce is being done by companies receiving FDI.
  • In India, 100% FDI under automatic route is allowed in Business to Business e-commerce since 2000.
  • When it comes to business to consumers (B2C) trade or retail trade, a distinction is made between single brand retail (selling products of a single brand) and multi-brand retail with respect to permission for FDI and e-commerce.
  • In the business to consumers (B2C) multi-brand retail segment, if the trade is happening on ‘marketplaces’, as defined in the subsequent section below, 100% FDI under automatic route is permitted in the entity providing that marketplace.
  • Further, FDI is permitted in Business to Consumers e-commerce retail segment In India.

 

Need for new e-commerce policy:

  • Defining e-commerce: There is no commonly accepted definition of digital economy or e-commerce. Further, there is inadequate data on the trade of digital products. Both these shortcomings hinder effective policy making in the country
  • Rapid growth of e commerce: The e-commerce market is expected to reach US$ 64 billion by 2020 and US$ 200 billion by 2026 from US$ 38.5 billion as of 2017. Thus there is a need for clearly laid-down rules for electronic commerce in the country.
  • Presence of multiple regulators: E- commerce is currently regulated by multiplicity of government departments such as IT Department, industrial policy, revenue, and RBI. Hence, a national e-commerce policy would consolidate the various norms and regulations to cover all online retailers.
  • To protect the interest of consumer: With the increasing online frauds, there is a need to strengthen the regulatory regime for protecting the consumer in the context of e-commerce
  • To scrutinize Merger and Acquisition: Unregulated Mergers and Acquisitions may “distort competition’.
  • To facilitate cross-border e-commerce: At multilateral forum such as the World Trade Organization (WTO), the government was facing pressure to negotiate rules facilitating cross-border e-commerce.A national e-commerce policy will also enable better negotiations on multilateral issues with the World Trade Organization.
  • To boost MSME: The e-commerce industry been directly impacting the micro, small & medium enterprises (MSME) in India by providing means of financing, technology and training and has a favourable cascading effect on other industries as well.

 

Types of e-commerce business model

 

Online Subscriptions:

These websites work like an offline subscription. Here the users can choose from subscriptions available on the website and subscribe according to their needs. The payment for subscription can be made online and also the recurring payments can be made in the same manner and the consumer can get the services.

 

Online Exclusive Brand Stores:

Here the brands create their own online brand stores. The brand’s catalog is uploaded on the website where the consumers see it which is also available in their physical stores. Here the consumers get the advantage of shopping from their trusted brands online without having to visit the physical stores.

 

Deals Websites:

There are various ecommerce websites which provide the best deals to the consumers. Such websites give the consumers various deals available on other websites or stores. For example coupondunia.in etc.

 

Marketplace:

Here the consumers and sellers are provided with a platform to interact with each other. Based on this there are various websites with different models that they follow.

 

Goals of the draft policy:

 

Creating a robust information base on e-commerce for making policies in India Strategies:

  • A common definition of electronic commerce for the purposes of domestic policymaking and international negotiations would be adopted
  • Separate and uniquely identifiable codes under the Harmonised System of Nomenclature (HSN) for recording data related to the trade in digital products would be developed.
  • The reporting of imports and exports of digital products in the GST Returns and in RBI’s Foreign Exchange Transactions Electronic Reporting System (FETERS), would be streamlined.

 

Creating a facilitative eco-system for nurturing digital innovation and stimulating domestic digital economy:

  • Steps would be taken to develop capacity for and incentivize domestic data storage in India through creation of facilitative data infrastructure by making domestic data storage economically attractive, including by way of the following:
  • Data centres/ server farms would be accorded infrastructure status
  • Provision of physical infrastructure for setting up data centres (power supply, connectivity etc.)
  • Provision of direct, indirect tax benefits and Customs duties rebate.
  • There could be, say a 2-year, sunset period for industry to adjust before localisation becomes mandatory.

 

The following categories of data would not be subject to any restrictions in terms of their cross-border flow:

  • Data not collected in India;
  • B2B data sent to India as part of commercial contract between business entity located outside India and an Indian business entity;
  • Software and cloud computing services involving technology-related data flows, which have no personal or community implications;
  • MNCs moving data across borders, which is largely internal to the company and its ecosystem; and
  • Start-ups that meet specified criteria, such as turnover up to Rs.50 crore.

 

The development of cutting-edge and innovative technologies in India would be promoted by ensuring access to data through the following:

  • The Government would have access to data stored in India for national security and public policy objectives subject to rules related to privacy, consent etc.
  • Data stored in India should be shared with start-ups meeting the stipulated criteria (turnover of Rs.50 crore etc.)
  • At the request of the consumer, data generated by her in India through various channels, including e-commerce platforms, social media, search engines etc., would be allowed to be portable amongst platforms in India.

 

E-commerce mode with FDI is permitted for:

  • Any B2B transaction
  • Any B2C transaction in products made in India by its manufacturer (whether foreign or domestic)
  • Any B2C transaction by a brick and mortar single brand retail company
  • Any B2C transaction by an Indian manufacturer, without any brick and mortar presence and using one single brand, provided 70% of his single brand products are manufactured in India or at most 30% is sourced from India
  • Any B2C ‘marketplace’ transaction.

 

Main provisions Draft e-commerce policy:

  • Common definition: A common definition of electronic commerce for the purposes of domestic policy-making and international negotiations would be adopted.
  • Single legislation: It proposes a single legislation to address all aspects of digital economy and a single regulator for issues related to FDI implementation and consumer protection. It says legal fragmentation seen across various laws governing the ecommerce sector should be corrected.
  • Data localization: It mandates localization of data in India, consistent with the Srikrishna Committee’s draft data protection bill. The draft also talks about the government having access to data stored in India for national security and public policy objectives.
  • Disclosures of Data: E-commerce entities would be required to disclose their data collection practices to consumers and share terms & conditions in a simplified format.
  • On FDI: The draft policy proposes 49% FDI under the inventory model for Indian-owned and Indian-controlled firms to sell locally-produced goods on their online platforms.
  • Registration of All Ecommerce Portals: All active e-commerce portals in India will have to register with e-Central Consumer Protection Authority (CCPA). CCPA shall act as a nodal agency for intra-government coordination, checking frauds within the industry, formulating regulations and more.
  • Regulations on Discounts: On the matter of discounts, the draft policy suggests a ‘sunset period’ for every discount and offer, beyond which no e-commerce portal can be allowed to provide discounts. Bulk purchase of branded goods such as electronic products, white goods, branded fashion by related party sellers, which lead to price distortions in a market place would be prohibited
  • Centralize registration: It recommends Centralized registration instead of local registration of e commerce companies.
  • Taxation of foreign-owned companies: Use principle of ‘significant economic presence’ as the basis for determining ‘Permanent Establishment’ for tax assessment. This would mean that the geography of an e-commerce platform would be less important than the scale of economic activity it has in India.
  • For MSME: The policy suggests a public-private retail platform only for micro, small and medium enterprises (MSMEs). It allows MSME to follow inventory based models for selling locally produced goods   through   an   online platform.
  • More Power to The Founders: It seeks to give more control and more power to the founders of the e-commerce business, rather than the investors. As per some analysts, this has been done because most of the biggest e-commerce portals in India are funded by foreign investors.
  • Separate wing in Enforcement Directorate: The draft suggests a separate wing be set up in the Enforcement Directorate to handle grievances related to foreign investment in ecommerce.
  • Merger and Acquisitions: More scrutiny of mergers and acquisitions that may ‘distort competition’. Competition Commission of India will examine entry barriers and anti-competitive practices. It assumes significance in the light of the recent acquisition of Flipkart by US retail major Wal-Mart.

 

Local Presence for Apps & Websites:

  • All ecommerce websites and apps available for downloading in India to have a registered business entity here.
  • Non-compliant ecommerce app/website to be denied access here.

 

Incentives for Data Localisation:

  • Location of the computing facilities like data centres, server farms within India.
  • Firms to get 3 years to comply with local data storage requirements.
  • Data storage facilities to get ‘infrastructure status’.

 

E-commerce Trade:

  • Curbs on Chinese ecommerce exports.
  • Gifting route, often used by Chinese apps and websites will be banned for all parcels except life-saving drugs.
  • Integrating Customs, RBI and India Post to improve tacking of imports through ecommerce.
  • Incentives & e-commerce export promotions.
  • Ecommerce start-ups may get ‘infant industry’ status raising limit for courier shipments from 25,000 INR to boost ecommerce export.

 

Challenges:

  • Due to mandatory supervision of Competition Commission of India on Merger and Acquisition and regulation on discounts have led to apprehensions of return of license raj.
  • Data localization norms in draft policy hasn’t been taken kindly by international firms as that would increase the cost and also raiseIPR concerns.
  • Curb on discounting in online retail may lead to loss of costumer for many established and new firms
  • Many State governments have shown their reservation towards Centralized registration of e-commerce as subject of commerce falls under State list.
  • The FDI provision restricted to Indian firms may Influence the much the needed FDI in general and e commerce industry in particular.

 

Way forward:

A single legislation to address all aspects of e-commerce would be enacted and a single regulator would be set up to consider issues such as:

  • Addressing the legal fragmentation seen across the various laws governing the ecommerce sector.
  • FDI implementation issues.
  • Consumer protection issues.
  • Central registry/ repository dealing with promoting domestic production, full disclosure by e-commerce entities of purpose and intent etc.
  • Reporting and information requirements.
  • Setting up an accreditation system for vetting e-commerce platforms which adhere to good business practices.
  • Any other issue identified by the Think Tank.

 

Sample Question:

Critically evaluate the recent Draft e-commerce policy?


Draft e-commerce policy - Info graphics - Feb27th