National E-Commerce Policy

 

Relevancy

  • GS Mains Paper-2, 3

Why in news?

  • Recently a Commerce Ministry task force submitted its recommendations on drafting of national e-commerce policy.

Why was the task force set?

  • The task force was set up by a 70-member think tank headed by the Minister for Commerce and Industry.
  • It was set 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 further 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.

Why do we need such 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 restraints?

  • 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, the marketplace operators cannot hold inventory (stocks) and sell products on their platform. They can only facilitate the online sale process for other vendors.
  • To name a few there is 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.
  • 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?

  • FDI may be allowed in inventory-based e-commerce companies up to 49% which 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.
  • 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.
  • 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.
  • 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.
  • 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.
  • 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.

 

 

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