Updated: Aug 24, 2021
India’s E-commerce policy is essentially a Digital Economy policy which impacts the entire ecosystem. We are already witnessing the ramifications of transformative digital technologies in the e-commerce sector as they oscillate between varied issues such as, international and domestic digital trade, consumer protection, information technology along with data privacy.
Due to its overarching and growing reach, the e-commerce policy garners attention from both domestic and international stakeholders. Therefore, it becomes of paramount importance, to remain competitive and observe how governments and companies are revamping their policies. The strategies with the emergence of improved internet infrastructure and innovative logistics systems. It wouldn’t be too far away when the developing economies close the gap with the developed economies in the e-commerce sphere.
The exponential rate at which e-commerce has been growing in emerging markets would not come as a shock when these emerging nations would soon surpass the developed countries. In India, the e-commerce market is expected to increase at a Compound Annual Growth Rate (CAGR) of 20.09 per cent from US$ 39 billion in the end of 2017 to US$ 200 billion by 2026. (IBEF estimates)
What needs to be encouraged by the Indian government is a levelled playing field and a conducive environment for e-commerce business operations to take place in an efficient manner. Given that the sector comprises cross-cutting and intertwined issues, which involve various departments and international governments, it is of utmost importance to look at the distribution of positive spillovers and externalities among different stakeholders.
International Challenges and Digital Trade War
One can fathom how India’s largest e-commerce portals, Amazon and Flipkart (now owned by Walmart) are on the verge of suffering huge losses if the new e-commerce policy is implemented in full swing. Many fear that these foreign businesses might pull out their huge investments from India, thus eventually slowing down the rate of investment in the e-commerce market. Thus, to maintain harmony in international digital trade, it is imperative to tread strategically and bring everyone on an equal footing without compromising on the access to capital.
India’s stance at the WTO is viewed as ‘protectionist’ since the Indian Government is seen safeguarding the interest of domestic players. Since the e-commerce market in our country is still at its nascent stage and is rapidly evolving, it is understandable to be reluctant with respect to issues of data localisation. India aims to enhance its Micro, Small and Medium Enterprises (MSME) sector, which is considered to be an engine of inclusive growth and provides immense employment opportunities. The MSMEs also make a significant contribution to exports, thus, boosting the e-commerce sector and economic development in India.
According to the National Trade Estimate Report 2019 on ‘Foreign Trade Barriers’, "India has recently promulgated a number of data localisation requirements that would serve as significant barriers to digital trade between the US and India’. This validates the fact that the United States has repeatedly been critical of India’s data localisation norms by calling its new draft e-commerce policy ‘protectionist’ and ‘draconian’.
It is an indisputable fact that a plethora of challenges need to be addressed, when it comes to our stance in the World Trade Organisation (WTO) negotiations.
India had maintained that, being an emerging economy, it was not ready to engage with multilateral rules on trade-related aspects of e-commerce.
Furthermore, these negotiations are rarely in favour of developing countries when it comes to international trade policies. They are majorly intended to create binding obligations since the dominance of developed nations in the WTO negotiations leads to them turning a blind eye to the interests of developing countries. Thus, the e-commerce policy is an important issue demanding attention from public policy makers in the developing world and India can’t fall behind in this race.
China took a similar path (if not exactly the same) in following the strategy of protectionism to build its huge e-commerce economy. It promoted a variety of homegrown tech giants by favouring domestic firms and restricting access to global companies and cross border data flow. For instance, Alibaba would not have been so big in the online commerce market if China had initially opened up its market to global giants like Amazon. Well, one can easily argue that if China was successful in following this strategy in the early stages of developing its e-commerce sector, why can’t India? If we pay attention to the positive side of things while putting effective mechanisms in place, India could very well generate huge employment, thus, tapping into the tremendous potential of its e-commerce market.
The Indian government should intend to utilise Artificial Intelligence tools as we are ushering into the Fifth Industrial Revolution and cannot afford to be left behind in implementing predictive approaches for effective policy making in India. A step in the right direction for collecting and analysing data in India could be attributed to the ‘Digital India’ initiative.
Apprehensions regarding Data Privacy
In the Digital era, privacy is an integral aspect and all policies should strive to ensure it through proper legal regulations in the e-commerce industry. Even though the intention of India’s policy with regard to the concept of ‘data for public good’ is positive, there are certain apprehensions when it comes to privacy regulations. The companies might feel too vulnerable if they are beseeched to openly share their source codes, after all that’s what differentiates them from others and leads to healthy competition.
A check on Data Transactions
In order to tackle market distortions with respect to access to data, it is essential for regulators to examine data transactions with scrutiny. Keeping in mind small enterprises and start-ups especially, advertising charges must be regulated in e-commerce as high charges often become stringent barriers to entry. Moreover, to ward off racial profiling in order to maintain fundamental rights such as the right to equality, it is important for the Government to reserve its right to seek disclosure of algorithms in the digital space.
Explicit Restrictions on Data Transfers
Even if the government makes it mandatory for multinational e-commerce companies to have their data centres and store data in India, the safe supervision of data is not assured with certainty. This holds true particularly when there is currently no law to stop companies from cross-border data transfers.
Unless the draft policy explicitly states the proper legal framework that would permit the Government to impose cross-border data flow restrictions, there would be unfair commercial use and the issue of Intellectual Property Rights would remain a long-standing concern for India. We are currently under the assumption that domestic firms would develop everything in India but there is no guarantee that they would not misuse the data collected. Hence, there needs to be an efficient regulatory framework, which creates a level-playing field and treats all firms with fair rules.
To realise our vision of being a leading e-commerce market globally, we need to deliberately join the WTO talks on e-commerce for effective implementation of our policy. However, this does not, in any way, mean that India has to give in to all the demands, terms and conditions proposed. It would be beneficial to participate actively in the multilateral talks and join international organisations to push the interests of India’s small businesses at a global level.
Therefore, with a well drafted and properly implemented e-commerce policy in hand, India could be a trailblazer in the global debate on e-commerce and be a beacon for the developing countries, which are not a part of the ongoing negotiations at the WTO.
An enforcement of the draft e-commerce rules implies that global companies would need to set up data centres in India and thus, it would lead to additional jobs and investments in India. However, on the flip side of the double-edged sword of a protectionist policy, it would also discourage global tech companies from promoting their cutting-edge technological services in India. How it pans out in the long run majorly relies upon Indian domestic players stepping up to fill the vacuum created and emerging influentially after the stamping out of foreign firms.
An era of Digital Trade has begun in all the emerging economies and the need of the hour is to align our domestic policy with the silhouette of an international agreement. The Indian government has a once in a lifetime opportunity to lend its critical support by recognising that there would be both winners and losers of India’s recent e-commerce rules.
India could very well build its own set of e-commerce successful giants by giving impetus to domestically-funded companies and following a ‘Make for India’ approach. However, intensifying cross-border e-commerce opportunities for small enterprises would largely hinge on conducive digital trade rules at both the national and international levels. Undoubtedly, India’s data should be utilised for the country’s development. In this process, however, it must be vowed that both Indian citizens and domestic companies receive equitable economic benefits from the effective monetisation of data.