Is the government's e-commerce policy an overkill?

Sindhuja Kashyap

The government has been trying to tame the internet commerce hydra for a while now. On February 23, 2019, it brought in the draft national e-commerce policy, making India one of the few countries in the world to take steps towards such an unconventional legislation.

However, to ensure a better understanding of the e-commerce sector and its future, you would do well to read the document with the Consumer Protection (e-Commerce) Rules, 2019. The policy was due to be implemented by the end of 2019, but has missed the deadline.

While focusing on bolstering domestic industry, the policy has resolutely ignored foreign market players. A significant part deals in data and its protection in which the government seems to be overly mindful of protecting non-personal data being collected by e-commerce players, which has not been covered under the proposed Data Protection Bill.

The policy rightly considers data as the new oil and ensures its protection by creating a mandate that domestic information as collected by e-retailers shall remain with data centers in India and there will be restrictions on its circulation among cross-border entities.

Such curbs could have a huge impact on these entities acting as large market players in India’s online marketplace, as this puts an additional obligation on them to set up a local/domestic data centre for collection and storage of such data. Such an additional obligation not only acts as a deterrence for the existing players, but also hampers their very entry into the market.

Further, the policy squeezes foreign investment in the inventory-based model, which clearly implies that no such entities can exercise ownership or control over the inventory sold on their platforms. This restriction, which recently sparked a huge hue and cry, courtesy the Press Note 2 of 2018, is set to see a strong wording in the policy.

As things stand, online retail giants Walmart-Flipkart and Amazon are set to face a tough time in complying with the same. However, it’s not just the big companies, but also homepreneurs and small e-tailers who may be impacted by the provision that if more than 25 percent of their overall inventory is sold on a single e-commerce platform, it will be considered as the entity of such a platform.

The policy mandates the presence of a registered business entity in the country for any foreign player that has an e-commerce site/app available for download in India.

Moreover, the policy attempts to channelise and streamline all products being imported to India by requiring the same to pass through the Customs route. This is predicted to blow a hole in the business of players such as Alibaba and Shein.

Establishing an entity in the country, ensuring its registration and obtaining a GSTIN (goods and services tax identification number) is only an onerous obligation.

The policy is strict about anti-counterfeiting and anti-piracy in the e-commerce sector. It imposes responsibility on the platform to inform the trademark owner every time such a trademarked product is made available on their platform. Such vigilance with proactive obligation means an increased cost on the balance sheet.

All in all, the policy is shaping up and air is rife with speculation that it could take a more formalised form. That’s something to watch out for. It seems to empower MSMEs (Micro, Small and Medium Enterprises), startups and small retailers, but definitely overlooks the burdensome obligation and cost on foreign e-tailers.

The intention behind an e-commerce business is to have an outreaching market without limited jurisdiction, avoiding burdensome compliances and generating maximum profit from minimum operational cost. However, the draft policy may seem to be undoing this very idea.

While all is well till a formal policy is made effective, one can only hope that the government does not end up throwing the baby out with the bathwater.

Sindhuja Kashyap is Senior Associate (corporate) at King Stubb & Kasiva, Advocates and Attorneys. Views are personal.