Comment | India's draft e-commerce policy: Build a wall, they will still come

India is not alone in thinking like this. China took a similar, if not exactly the same, path earlier. For decades, protectionism has helped China build its own tech economy. By promoting domestic firms and restricting access to global companies, China today has got a bunch of homegrown giants who are among the top tech players globally. In the online commerce space, Alibaba would not have be so big if China had opened up its market to Amazon.

One can argue if China can be successful in following this strategy, why can’t India?

Favouring domestically-funded homegrown companies will help India build its own set of giants that  shapethe new economy and some of them may eventually turn out to be successful multinationals.

Indeed, the draft e-commerce comes on the heels of a press note that the government issued in December. Then, it had taken the first step, so to speak, and restricted foreign-funded companies from selling through affiliate firms. Foreign-funded online commerce companies are only permitted to operate marketplaces and  barred from holding inventories.

A strict enforcement of the draft e-commerce rules means global companies will have to house their India-specific data in India within three years. This would mean companies such as Amazon and Walmart-Flipkart will need to set up data centers in India, if they do not have those here already. It has the potential to lead to additional investments and jobs created within India.

But’s that the glass half-full look. It rests on the assumption that no multinational would step back from investing  because of the growth projections and untapped opportunities. India’s ecommerce industry is projected to cross $200 billion by 2026 from $38 billion in 2017.

A protectionist strategy that favours home-grown companies means putting a brake to one of the country’s fastest-growing sectors that is dominated by two American retailers – Amazon and Walmart-Flipkart. If India decides to stick to this, the ecommerce industry might hit a wall before domestic biggies start pumping in money to capitalise on the consumer preferences of buying online. There could be job losses and a miss on growth projections in the medium term.

A protectionist policy  will also discourage the global tech giants from bringing their cutting edge products and services to India.  A lot depends on domestic players stepping up and filling the gap that may emerge after the clampdown on foreign-funded firms.

But the moot point here is how will domestic data centres help?

Even if India makes it mandatory for multinational ecommerce companies to have data centres in India and store data in India, nothing guarantees safe custody of data, especially when there is no law that stops companies from cross-border data transfer. Interestingly, the draft policy does mention that “there is no legal framework that would permit the Government to impose restriction on cross-border flow of data”.

That’s probably one of the first things that the government needs to work out. Here, the EU’s take on data protection makes more sense because it focussed on stopping misuse of data. India could follow the EU model and have a stringent regulatory framework that aims to stop misuse of data   collected by multinational companies from their business operations in India and penalise them for any kind of violation.

Such an approach will also  have to ensure that domestic-funded firms will be treated the same way. There is no mention in the draft policy of what home-grown companies and domestically funded firms will have to do. It is assumed that home-grown companies will have everything in India, and will also develop everything locally. There is no guarantee that home-grown domestically-funded companies won’t misuse data.

In the end analysis, consumers, who are the reason for the ecommerce industry’s fast growth, are not getting much from the proposed ecommerce policy. Besides the norm that is aimed at curbing counterfeit products, the policy only proposed to set up e-consumer courts to address consumer grievances.