Draft National E-Commerce Policy

Why in news?

A Commerce Ministry task force has submitted its recommendations on a draft national e-commerce policy.

What was the task force for?

• The task force was set up by a 70-member think tank headed by the Minister for Commerce and Industry.
• The task force was to suggest a framework for the national policy on e-commerce.
• With the task force's recommendations in place, the think tank will now work on creating a draft policy.
• It is the final draft of the think tank which will be taken up by the government.

What are the recent developments?

• India’s e-commerce sector is currently estimated to be worth around $25 billion.
• It is expected to grow to $200 billion over the next 10 years.
• Cheaper smartphones and data tariffs, and enhanced connectivity contribute to the growth prospects.
• The bigger e-commerce firms have largely covered the metros and large cities.
• As a next phase, they could move to tier-II and tier-III towns.
• Expansion of 3G and 4G networks to these towns have put more consumers online.

What is the need for a policy?

• The e-commerce growth has led to job creation, productivity improvement, and increased online presence of consumers.
• To benefit from these opportunities, it is essential to be responsive to the underlying challenges.
• There is thus the need for clearly laid-down rules for electronic commerce in the country.
• Many of these rules currently exist in some or the other form.
• But they are enforced by a multiplicity of government departments and regulators.
• Hence, a national e-commerce policy would consolidate the various norms and regulations to cover all online retailers.

What are the current limitations?

• Restrictions - India does not allow FDI in e-commerce companies that hold their own inventories/stocks [inventory-based model]
• On the other hand, the government allows 100% FDI in the marketplace model.
• Here, marketplace operators cannot hold inventory (stocks) and sell products on their platform.
• They can only facilitate the online sale process for other vendors.
• E.g. Amazon and foreign-funded companies in India including Flipkart, Shopclues and Snapdeal
• These only provide platforms to other retailers and vendors by allowing them to list their products.
• However, huge share of investments in e-commerce firms are coming from abroad.
• So the e-tailers are setting up seller entities that sold foreign firms' products on the platforms.
• Eventually, in 2016, the government mandated that no platform should have more than 25% of its sales coming from a single seller.
• Also, they are not allowed to directly or indirectly influence prices of products sold on their platforms.
• With these restrictions, e-commerce companies have not been able to offer their in-house brands extensively.
• Consumer Protection - There have been incidents of customers expressing dissatisfaction with products purchased online.
• In some cases, bricks and soaps have been delivered instead of mobile phones.
• This is an inherent flaw of the marketplace model.
• Because, market platforms do not have full control over the supply chain and only functions as a facilitator.
• There are also complaints of prices being higher than the maximum retail price (MRP).
• National Consumer Helpline of Consumer Affairs Ministry is currently the only redressal mechanism.

What are the key recommendations?

• Inventory model - FDI may be allowed in inventory-based e-commerce companies up to 49%.
• This comes with a condition that the e-tailer sells 100% Made-in-India products.
• This will allow e-commerce firms to offer their own brands as long as they are made in India.
• It is also suggested that foreign e-commerce websites be brought on a level playing field with their Indian counterparts.
• Marketplace model - For online marketplaces, restrictions would be imposed on group companies of such platforms.
• The marketplaces will not be able to offer deep discounts through their in-house companies listed as sellers.
• This is to prevent them from directly or indirectly influencing the prices of goods and services.
• Bulk purchases of branded goods “by related party sellers which lead to price distortions in a marketplace” will be prohibited.
• Consumer Protection - To provide a forum for consumers, the task force suggested a Central Consumer Protection Authority (CCPA).
• This, besides helping consumers, will act as the nodal agency for intra-government coordination.
• It will thus provide a platform for e-commerce operators regarding complaints of fraudulent activities.
• Redressal - The draft suggests a separate wing to be set up in the Enforcement Directorate.
• This will handle grievances related to guidelines for foreign investment in ecommerce.
• Payment - Currently, a large number of payments for online purchases is made through the cash-on-delivery option.
• To make online payments safer, the task force has suggested creating a fraud intelligence mechanism.
• This would use artificial intelligence-based authentication systems, for early detection of frauds.
• Regulation - Greater regulatory scrutiny has been recommended for mergers and acquisitions that may distort competition.
• A relook has been suggested on what constitutes entry barriers and anti-competitive practices.
• The Competition Commission of India has been asked to undertake such exercises.
• This assumes significance in the light of the recent acquisition of Flipkart by US retail major Walmart.
• The policy also suggests a sunset clause for deep discounting wherein a “maximum duration” would be set for “differential pricing strategies”.

What are the implications?

• If implemented, it could impact consumers’ online shopping experience in multiple ways.
• They include how discounts are given, the availability of newer products, and the redressal of complaints.
• E-commerce platforms would have to mandatorily provide the government’s RuPay payment option.
• Suggestion for creation of a single national regulator to oversee the entire industry requires action from multiple ministries and regulators.
• Also, there is need for amendments to existing legislation and rulebooks.

Source: Economic Times, Indian Express