National E-Commerce Policy
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.