India: The Draft e-commerce Policy Will Strangle Industry's Growth

Last Updated: 17 September 2018
Article by RV Anuradha and Piyush Joshi
  • In the year 2018, the Draft Policy is suggesting a plan similar to what was implemented, and failed, for the "physical" economy from 1950s right until 1990.
  • The Draft Policy suggestion to tinker with established corporate law principles to allow "founders to have control over their e-commerce companies, despite having small shareholding" shows a remarkable nonchalance for established corporate law principles.
  • The Draft Policy runs the risk of discouraging foreign investors, which will only result in India being knocked down in the international business ratings.

"What is the Matrix?" a baffled Neo (played by Keanu Reeves), asks of Morpheus (Laurence Fishburne) at the beginning of their meeting in the cult classic The Matrix.

The present draft National E-Commerce Policy achieves Neo's level of initial bafflement and perplexity with the Matrix, in relation to "e-commerce" and the "digital economy".

The Draft National Policy Framework grapples with these concepts throughout its text. However, unlike Neo in The Matrix, the Draft Policy does not eventually morph into "The One" saviour, but rather remains as a large entangled web of suggestions that do not seem to achieve any of the stated objectives.

The Draft Policy, which after describing a number of goals and moving through a large number of concepts and repeatedly stating that it wants to "spur digital innovation" and "stimulate the digital economy", settles on the way forward through "a single legislation to address all aspects of e-commerce" and creation of "a single regulator" that would address issues ranging from consumer protection to competition to FDI in the e-commerce sector.

Elsewhere in the Draft Policy, it also refers to the need for creation of a "Central Consumer Protection Authority" (CCPA) which will address not only issues relating to consumer protection, but also inter-ministerial coordination on all aspects of e-commerce. But it is not clear whether the single regulator proposed is the CCPA or a separate e-commerce regulator which the policy envisages will oversee the entire segment of "e-commerce", including FDI, consumer protection, payment mechanisms on e-commerce platforms, etc.

This must give one pause to contemplate; because creation of a centralised regulatory framework is what was imposed on the "physical" economy in 1950s through the Industries (Development and Regulation) Act, 1951 (for industries) and the Agricultural Produce Marketing Committees (APMC) (for agriculture), both of which were initially constituted as welfare measures for bringing about level playing fields.

Needless to say, these centralised regulatory frameworks only strangled India's growth and held it back for decades and culminated in the economic crisis of 1990. Now in the year 2018, the Draft Policy is suggesting a plan similar to what was implemented, and failed, for the "physical" economy from 1950s right until 1990.

E-Commerce Growth in India today

The IBEF estimates that online retail sales in India are expected to grow by 31 percent to touch $32.7 billion, led by Flipkart, Amazon India and Paytm Mall — each of which are entities with significant foreign investments.

It seems that after much deliberation the Draft Policy is suggesting that the growth of not only the online retail sector but the entire "digital economy" should be regulated and brakes applied to ensure "level playing field" for "domestic innovation".  However, there is nothing in the Draft Policy that would result in this stated objective.

It is also a matter of fact that Flipkart and Paytm, which were started by domestic Indian players, have flourished and grown because of the regulatory framework that allowed the flow of significant amounts of foreign investments which is so essential for the continued growth of the sector.

Any reversal of this trend will simply disincentivise foreign investments. It is also a matter of fact that domestic capital continues to be far more expensive than foreign sources of capital. 

How to achieve Indian control

The Draft Policy suggests tinkering with established corporate law principles to allow "founders to have control over their e-commerce companies, despite having small shareholding".

This shows a remarkable nonchalance for established corporate law principles, which even today allow for differential voting structures and affirmative votes for specific shareholders in critical aspects of decision making.

The extent to which a promoter/founder can leverage this depends on a variety of aspects ranging from its own net worth, and negotiating prowess.

The Draft Policy's prescription that such entities be allowed flexibility to list shares and bonds, without any discussion on the rationale for such checks being stipulated for entities that seek to raise monies from the public, will likely result in frauds equivalent to "chit funds" and "ponzi" schemes to run rampant in "digital economy", under the garb of promoting the "Indian control".

Competition in E-Commerce

The Draft Policy also calls for Competition Commission of India to lower the merger thresholds so that mergers of even lower values would require CCI prior approval.

Amendment of competition thresholds in themselves, however, is not the answer, and in fact will signal a reversal of easing businesses for entities entering India. What is instead required in the context of mergers and acquisitions in the digital space, is an understanding of rules of competition relevant for companies that deal with data, and impact of data sharing.

For instance, the reason that the Facebook-Whatsapp merger escaped competition scrutiny in most jurisdictions is not because of low merger thresholds; but because of the lack of appreciation of the voluminous data sharing that would occur between both entities.

When this fact became apparent, the EU DG Competition imposed a strict penalty on Facebook for not disclosing this aspect, and additionally, privacy investigations are also ongoing.

Another aspect relevant from a competition perspective is that of pricing. The Draft Policy recommends "a sunset clause, which defines the maximum duration of differential pricing strategies (such as deep discounts) that are implemented by e-commerce platforms to attract consumers".

There is no criteria or basis for such a suggestion.

Aggressive price competition is the hallmark of truly competitive markets. But at the same time, rules of Indian competition law recognize the importance of addressing Predatory Pricing (PP).

Simply explained, PP is the practice of driving rivals out of business by selling at a price below the cost of production, and when the latter have been successfully expelled, the predator raises the prices again and reaps the rewards.

The issue of discounted pricing needs to be viewed from the lens of whether there is indeed PP, or fair competitive pricing of a fierce competitor that is actually benefiting consumers and forcing other firms to be more competitive.

Clearly, the pricing for e-commerce sales and physical retail stores cannot be compared since e-commerce entities have a significant price advantage over physical stores.

The focus should therefore be an evidence-based approach to understanding how discounts impacts e-commerce players and whether principles of competition law as they exist can address this; rather than simply stipulating price regulation in an era of liberalization.

Data Storage in India

The Draft Policy suggests creating infrastructure for data centres in India and links this to a sunset provision of two years at the end of which it will be mandatory to hold all data generated by users in India within India.

Incentivising the development of large data centres is a welcome move; but the policy rationale for storage of all Indian data in India is not clear, since storage in India does not automatically ensure security of the data.

Instead the focus should have been on enforceable obligations of e-commerce players to ensure privacy and security, which is expected to be achieved under the Personal Data Protection (PDP) Bill proposed by the Justice Srikrishna Committee.

While the draft PDP Bill as of now has several infirmities which have been discussed in another article for this platform, this aspect needs to be addressed under the rubric of Data Protection, and not as a separate requirement for e-commerce entities.

If the policy objective is to make India an attractive destination for establishing data centres, then the Draft Policy on e-commerce should instead have been on how to address the infrastructure requirements for creating large international grade internet data centres, which will need, among various aspects, (i) assured 24x7 electricity supply at a specified quality (i.e. no fluctuations), (ii) high levels of assured bandwidth, (iii) security of construction, including resistance to explosives and bombs, (iv) various clearances, (iv) large land requirements and (v) high level of security, access control and related regulations.

Centralised or Distributed Control?

One of the more ironic suggestions of the Draft Policy is its suggestion to use "blockchain technology" for "furthering financial inclusion" and that this is needed "for deeper spread of e-commerce in the country".

For a Draft Policy propagating centralised control over the "digital economy", to, at the same time, recommend the use of "blockchain technology" is baffling.

The report of the committee constituted by the RBI to review financial technologies ("FinTech"), explains block-chain as a distributed ledger. "Distributed ledger technologies (DLT) provide complete and secure transaction records, updated and verified by users, removing the need for a central authority."

It further explains that One of the best-known applications of Block chain technology at the present time is bitcoin. (Transactions in this virtual currency are largely anonymous. This creates ethical risks for financial institutions dealing with users of this currency, because they are unable to (fully) verify their identity.")

Clearly, there needs to be more dialogue and discussion on whether the approach required is centralised or distributed, and the ways in which potential risks of blockchain can be managed, rather than simply recommend its use as a solution.

Although the Draft Policy seems to have taken a few paragraphs from the RBI's FinTech Report submitted in November 2017, it fails to take the main recommendation in relation to regulation of such technology into consideration which is "The regulatory actions may vary from "Disclosure" to "Light-Touch Regulation & Supervision" to a "Tight Regulation and Full-Fledged Supervision", depending on the risk implications".

Misplaced Nostalgia?

The Draft Policy appears to be inspired by nostalgia for the central planned economy era of the 1950s to 1990, which has been proven to have had its limitations on growth and development.

It is now over 20 years since liberalisation of the Indian economy commenced, and India is also fast emerging as the destination for significant investments in the e-commerce space.

The Draft Policy runs the risk of reversing this trend by discouraging foreign investors, which will only result in India being knocked down in the international business ratings in which it has just managed to crawl up to the 100th position from languishing around the 130s level.

Digitisation and transfer of physical ways of transacting into the digital space, has had a transformative impact on the ways in which businesses can be done. What we need is a facilitative environment that can attract and retain investors and investments, and encourage innovation that can further enable growth of the sector.

Regulatory accountability is crucial; but regulatory control to scuttle growth and expansion certainly seems counter-productive to the entire vision of digital growth.

Originally published by CNBC TV18, August 2018

Piyush Joshi and RV Anuradha are partners at Clarus Law Associates, New Delhi.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

RV Anuradha
In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
Email Address
Company Name
Confirm Password
Mondaq Newsalert
Select Topics
Select Regions
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions