The stated goal of the present dispensation is digitisation, no matter which vertical, e-commerce, e-payment, e-bookings, e-health, e-education, e-land records, one can name many disciplines. E-commerce, e-retailing is one extremely important component.
During the pandemic, the benefits of e-commerce in procuring groceries, medicines, and other essentials, cannot be overstated. E-commerce has also been the key to the survival of MSMEs during the pandemic. The proposed rules will impose an onerous burden, stifle this nascent sector, hit MSMEs hard and impact consumers.
There have been many indirect benefits all across the sector in terms of foreign direct investments, employment generation by creating infrastructure, delivery systems etc. all across the country. E-commerce has a market share of around 10 per cent of the entire retail ecosystem. But overregulation is another way to control or stifle competition, innovation, investments, and job creation. Frequent policy changes are an anathema to investors who loathe an unpredictable environment.
Since the first lockdown was announced in March 2020, MSMEs that made the early shift to digitalisation were able to sustainably run their business in such unprecedented times. Online marketplaces such as Amazon, Flipkart, Reliance Retail, Tata etc saw an unprecedented increase in listings from new sellers eager to get into online retail when traditional avenues were forced to shut down.
Several of these new online sellers were able to expand despite the pandemic and achieved record sales. The fact that e-commerce has helped families sustain their livelihoods during the pandemic is unquestionable. These would ideally be the reasons why e-commerce should have been in the news over the past couple of months.
Can we really afford to let go this opportunity by indulging in overregulation, and allow this burgeoning industry to be stifled by internecine inter-ministerial turf wars. The answer is a clear no.
Over the past couple of years, there have been multiple legislations that have been introduced to regulate e-commerce leading to fears of this sector being overregulated. Further, the existing major players are being subjected to different regulations with multiple compliances every year. There are several arms of the government either making or in the process of making regulations to govern e-commerce.
There is need for an authority which coordinates holistically all aspects of e-commerce, which possible would include consumer interest, FEMA/FDI, aspects, country of origin etc. There must be one set of comprehensive rules to encompass the e-commerce vertical by a nodal Ministry or a department like the DPIIT.
The one at the forefront are the amendments proposed to the Consumer Protection (E-Commerce) Rules, 2020 by the Ministry of Consumer Affairs. Some of the highlights of these Draft Rules include banning flash sales, mandatory listing of country of origin of every product listed on marketplaces, providing information to government agencies with 72 hours of them asking for investigation purposes, having a domestic alternative for every foreign product sold.
The proposed rules are not only extremely labour intensive but are also against free market principles. While the goal of these rules is to protect and further the interests of the consumer, it has been met with a negative response from the e-commerce ecosystem because of the massive increase in compliance costs. Consumers too have found the regulations unfriendly as they will most definitely lead to increase in prices of products online.
A minor issue which is getting lost in the din of these amendments is the reciprocity in other jurisdictions. Other countries might follow the tit-or-tat policy. The government can ban products from one specific country if the reasons are legitimate, but not from all countries. The identification, if at all, should be on the basis of exclusion and not inclusion.
The Department for Promotion of Investment and Internal Trade (DPIIT) is also in the process of regulating the internal workings of e-commerce companies and have in the past sought details of volume of business, investments, and commission agreements. The new draft rules have mandated that all e-commerce companies register with the DPIIT. The DPIIT also ensures that e-commerce companies comply with the GST Act.
Additionally, the Foreign Exchange Management Act (FEMA) governs e-commerce entities (big and small) that have raised money from foreign investors. FEMA and the FDI policy impose a plethora of compliance obligations on entities that fall within their scope. E-commerce companies have to abide by those in any case.
Overregulation of e-commerce at this time may have major macro level adverse effects on a country already reeling from the debilitating effect of Covid. And the first to fall prey will be MSMEs.
Moreover, the draft rules require e-commerce entities to compulsorily appoint a Chief Compliance Officer and a nodal contact person for 24x7 coordination with law enforcement agencies. For a small company that is just starting out, the expense of hiring such mandated persons can kill entrepreneurship before it even begins.
Further, sellers on big platforms from small towns with a non-technical background will just not be able to keep up with the increased compliances that are being proposed and will be forced to drop out of these platforms.
At a cursory glance it does seem like that there is a turf war going on between various government bodies as to who can regulate e-commerce more, and it seems as if all of them are competing with gusto. In the end it is the consumer who will bear the brunt as prices of products will rise due to increased costs of compliance and operations and restrict choices.
The government needs to take a hard look at all the regulations that are being proposed from the point of view of an e-commerce retailer and will need to dilute them significantly to ensure online retail does not stall at such a crucial juncture. Regulations are important, but they must be done on a pragmatic basis, by one Nodal Ministry, so that macro level adverse effects are minimised.
The proposed e-commerce regulations are reminiscent of the days of command and control which thankfully ended in 1991.
This article was first published in The Hindu Business Line on 22nd July 2021
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