Over the weekend, the Department for Promotion of Industry and Internal Trade released India’s Draft Ecommerce Policy (pdf). The DPIIT has invited comments from stakeholders and the public, which can be sent to goonjan.kumar@gov.in till 9 March 2019.

At this point, it is unclear if the comments submitted towards this draft will be made public. 

Points raised in the policy are both explicitly cited and paraphrased. Here’s a piece by piece lowdown on all the issues it raises:

The goal of the ecommerce policy

  • The ecommerce policy will address the regulatory gaps from the Personal Data Protection Bill. It will also ensure that policy and programmes are ‘harmonious across Ministries and Departments of the Government.’

The goal: 

  • “creating a facilitative regulatory environment for growth of e-commerce sector
  • empowering domestic entrepreneurs
  • encouraging Make in India
  • safeguarding interests of the consumers
  • leveraging access to data
  • mainstreaming the segments of our economy hitherto having limited access to the digital ecosystem (MSMEs, vendors, traders etc.), by empowering them through skilling…”
  • “promoting domestic research and development in digital innovation in order to foster homegrown alternate, cheaper and efficient service providers suited for the Indian market, including those in digital payment processes, likeRuPay and BHIM
  • enabling domestic players in the Indian market to be sustainable in the digital economy
  • stimulating the participation of micro, small and medium enterprises, start-ups and traders in the digital economy”

Through 6 issues:

  • “data
  • infrastructure development
  • e-commerce marketplaces
  • regulatory issues
  • stimulating domestic digital economy
  • export promotion through e-commerce”

Taking into account the “needs and expectations of all stakeholders.. startups, small manufacturing, trading and service enterprises a high consideration.”

The definition of ecommerce

The policy states that “There is no universally accepted definition of e-commerce. In this Policy, the terms ‘e-commerce’, ‘electronic-commerce’ and the ‘digital economy’ are used interchangeably, as the context requires.”

e-Commerce includes buying, selling, marketing or distribution of

  • goods, including digital products and
  • services; through electronic network
  • “Delivery of goods, including digital products, and services may be online or through traditional mode of physical delivery.
  • Similarly, payments against such goods and services may be made online or through traditional banking channels i.e. cheques, demand drafts or through cash.”

Global ecommerce regulation triggered India specific norms

  • “India has thus far not been a party to negotiations on e-Commerce at the multilateral level. These negotiations, under the aegis of the World Trade Organization (WTO), are intended to create binding obligations on all the WTO member countries, including India.”
  • The push for initiating negotiations on substantive obligations related to e-commerce includes elements like permanently accepting the moratorium on imposing customs duties on electronic transmissions.
  • With increasing digitization, more and more products like books, music, films, video games, etc. are being traded electronically.
  • By agreeing to the permanent moratorium, countries which have tariff schedules, which allow putting duties on these kinds of products, will give up these rights and lose revenues.
  • The tariff schedules agreed to at the WTO are in a form that developing countries have typically got higher tariffs and they have paid for these in other areas of the Uruguay Round Agreements.
  • By making the moratorium permanent, and with more and more products now traded digitally in the era of additive manufacturing and digital printing, the GATT schedule of countries will erode and will vanish ultimately.
  • Assuming that all non-agriculture products can be traded electronically, then everything will be traded at zero duty.

So, the protection that is available to India, for the nascent industries in the digital arena will disappear at once, and is an important issue which concerns public policy makers in the developing world.

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Some of the most pertinent flags relating to the Indian digital ecosystem are: 

Source code handover for security

During negotiations, the policy space must be retained to seek disclosure of source code for facilitating transfer of technology and development of applications for local needs as well as for security. Policy space to grant preferential treatment of digital products created within India must also be retained.

What is data, its monetisation

  • “In the context of e-commerce, data is any type of information converted into a binary digital form that is efficient to store, process and transfer across different devices, platforms, servers and borders. Data is a valuable resource for any individual, corporation or a Government. It has a real and measurable value, and can be processed to aid decision-making.”
  • Monetization of data is an important business model adopted by many corporations to generate profits by analyzing, processing and utilizing data.
  • Data generated by activity in one area can provide a competitive edge for a new business in another area.
  • Thus, access to data has emerged as a main determinant of success of an enterprise in the digital economy.

The Policy acknowledges the importance of data as an asset and identifies the means to protect data generated in India, enhance data security, prevent violation of privacy and create domestic standards for devices which are used to store, process and access data.”

India is likely to become one of the largest sources of such commercially useful data in the world. Further, the presence of ‘network effects’ means that in the era of data, the larger the firm, the greater the access to potential sources of data and greater the likelihood of its success.”

Who owns data? 

  • An Individual owns the right to his data. Therefore, if at all the data of an individual is used, it must be with his/ her express consent. This consent has to be expressed in a form understandable and regarding the uses to which it shall be put.
  • Even after data is anonymized, the interests of the individual cannot be completely separated from it.
  • Data about a particular group will always have something of value for them. Data about a group of individuals and derivatives from it is thus the collective property of the group.
  • Thus, the data that is generated in India belongs to Indians as do its derivatives. 

Data availability, data sharing and data sovereignty

The policy states that arguments that data held by large corporations should be available to other companies through ‘compulsory licensing’ or FRAND terms forgets that these companies do not own the data which they have processed and monetized.

  • The data of a country, therefore, is best thought of a collective resource, a national asset, that the government holds in trust, but rights to which can be permitted.
  • India and its citizens have a sovereign right to their data. This right cannot be extended to non-Indians (the same way that non-Indians do not have any prima-facie right or claim to, say, an Indian coal mine).”
  • “This understanding flows from the acknowledgement that data about an Indian, is his/her own.”
  • Even after anonymization, the interests of the individual cannot be completely separated from the derivatives that may be obtained by analyzing and drawing inferences from a certain set of data.”

Data can, therefore, best be likened to a societal ‘commons’.

  • National data of various forms is a national resource that should be equitably accessed by all Indians.
  • The same way that non-Indians do not have access to the national resources on the same footing as Indians, non-Indians do not have equal rights to access Indian data. However, access to it can be negotiated, in national Interest.”

Why is cross-border data flow a problem? 

  • At this juncture there is no legal framework that would permit the government to impose restrictions on cross-border flow of data. Without having access to the huge trove of data that would be generated within India, the possibility of Indian business entities creating high value digital products would be almost nil. Domestic technology companies would be merely processing outsourced data work.”
  • Further, by not imposing restrictions on cross-border data flow, India would itself be shutting the doors for creation of high-value digital products in the country.
  • “Location of the computing facilities like data centres and server farms within the country will not only give a fillip to computing in India but will also lead to local job creation.”
  • “In the future, economic activity is likely to follow data. It is hence vital that we retain control of data to ensure job creation within India. Cloud computing should become an economic activity in India. Data analytics in the era of industry 4.0 should become a major job creator.”

How to utilise data – but where does IoT come from?

  • “It is almost a cliché today that data is the new oil… data flows freely across borders.” Therefore, India’s data should be used for the country’s development. Indian citizens and companies should get the economic benefits from the monetization of data.
  • A legal and technological framework to be created for imposing restrictions on cross-border data flow (but also sharing data from (1) for R&D and public policy) from the following sources:
  1. Data collected by IoT devices installed in public space
  2. Data generated by users in India by various sources, including e-commerce platforms, social media, search engines etc.
  • “A business entity that collects or processes any sensitive data in India and stores it abroad, shall be required to adhere to the following conditions:
  1. All such data stored abroad shall not be made available to other business entities outside India, for any purpose, even with the customer consent
  2. All such data stored abroad shall not be made available to a third party, for any purpose, even if the customer consents to it
  3. All such data stored abroad shall not be made available to a foreign government, without the prior permission of Indian authorities
  4. A request from Indian authorities to have access to all such data stored abroad, shall be complied with immediately
  5. Any violation of the conditions mentioned above shall face the prescribed consequences (to be formulated by the Government).”
  • Restrictions on cross-border flows of data shall not apply to the following:
  1. Data that is not collected in India
  2. B2B data sent to India as part of a commercial contract between a business entity located outside India and an Indian business entity
  3. Software and cloud computing services involving technology-related data flows, which have no personal or community implications
  4. MNCs moving data across borders… internal to the company and its ecosystem, and does not contain data that has been generated by users in India from various sources, including e-commerce platforms, social media activities, search engines etc.”
  • Suitable framework will be developed for sharing of community data that serves larger public interest (subject to addressing privacy-related issues) with start-ups and firms… The implementation of this shall be undertaken by a ‘data authority’ to be established for this purpose.”

On the governance of data

  • “The single biggest factor in e-commerce is data. It is essential that regulators examine transactions with reference to the access to data that they entail. Access to data can give rise to market distortions.”
  • “… high advertising charges become a barrier to entry. Advertising charges in e-commerce must be regulated, especially for small enterprises and start-ups.”
  • The network effect must also be kept in mind while analyzing mergers and acquisitions… the presence of network effect implies that it is virtually impossible for ‘second-movers’ to enter the market.
  • Data effect and the network effect are the reasons why selling at a loss has emerged as ‘sustainable’ for enterprises…. These are aspects which the anti-trust regime must take into account…
  • “AI, big data, deep learning and cutting-edge technology are going to take center stage in the times to come…. regulators and law makers must create dedicated ‘technology wings’ within their organizational set-ups.”
  • ‘… It is also important for the Government to reserve its right to seek disclosure of source code and algorithms… Decisions will need to be explained…. preventing racial profiling and maintaining constitutionally mandated rights, such as the right to equality.”

Readers would like to note here that over the period of this month, that the Indian Parliamentary Committee on Information Technology has called on Facebook, WhatsApp and Instagram representatives (a couple of weeks after it summoned Twitter) to discuss the safeguarding of citizens’ rights on online platforms. 

  • Departments should aim to use AI tools and attempt a predictive approach to policy making.
  • Collecting and analyzing data is an end in itself. This is an important task, which must not be neglected.
  • Continued focus on Digital India initiatives by the Government will help in development of e-commerce sector.

On data privacy and the need for local representatives

  • “... Privacy is an important aspect and all possible efforts must be made to ensure it. However, law and order in society is something that we cannot live without. The Government must stand up to the challenge. Access to data for purposes of maintaining and ensuring law and order cannot be over emphasized.
  • Participants of the digital economy that have access to the data of Indians must nominate a local representative to be responsible for the affairs of the company in India.”

Infrastructure development: cloud, data centres etc

  • ‘Digital India’ consists of three core components:
    (i) the development of secure and stable digital infrastructure
    (ii) delivering government services digitally
    (iii) universal digital literacy
  • Steps will be taken to develop capacity for data storage in India… A time-frame would be put in place for the transition to data storage within the country. A period of three years would be given to allow industry to adjust to the data storage requirement.”
  • Data centres, server farms, towers and tower stations, equipment, optical wires, signal transceivers, antennae etc. will be accorded ‘infrastructure status’. Physical infrastructure … will be established by the relevant implementing agencies, while financing agencies may identify these as infrastructure that they may intend to support. This would facilitate achieving last mile connectivity across urban and rural India, including hilly areas, as aimed under the Digital India initiative.”
  • Domestic alternatives to foreign-based clouds and email facilities will be promoted. Ways of promoting this could include budgetary support.”

The definition and regulation of ecommerce marketplaces 

  • e-Commerce marketplaces are digital platforms, i.e. online platforms on which goods (physical or digital) or services, are sold. An e-commerce marketplace is expected to provide all-round benefits in comparison to its physical counterpart, by increase in access and economies of scale in operation.”
  • Another benefit in this field has been the development in the area of logistics (delivery partners), which has provided employment to a significant number of people.

The push for ecommerce through:

Multiple measures here overlap with the requirements for India’s proposed Intermediary Guidelines.

1. FDI

The FDI Policy in e-commerce aims to demarcate what constitutes a marketplace model and what comprises an inventory-based model of sale and distribution. “A situation of capital dumping is to be strongly discouraged… The FDI policy, also takes into account interests of domestic manufacturers/traders/sellers/MSMEs/start-ups and seeks to create a level playing field in retail.”

  • Online marketplaces should not adopt business models or strategies which are discriminatory, that is, which favour one or few sellers/traders operating on their platforms over others.
  • MSMEs and start-ups are often not equipped to set up and maintain complex distribution channels and cannot afford the expenditure of a significant marketing campaign.
  • Therefore, FDI policy mandates fair and non-discriminatory treatment of all the stakeholders, including MSMEs and start-ups, operating on a marketplace.”

2. Compliance

The following shall be applicable to all e-commerce websites/applications:

  • “All product shipments from other countries to India must be channelized through the customs route.”

Note that this rule about customs is going to affect all orders made from non-India based ecommerce sites like AliExpress, Etsy, Kickstarter to name a few. 

  • “An integrated system that connects Customs, RBI and India Post to be developed to better track imports.
  • Any non-compliant e-commerce app/website will not be given access to operate in India.

Need for a local office: All ecommerce sites/apps available for download in India must have a registered business entity in India as the importer on record or as the entity through which all sales in India are transacted…. for preventing deceptive and fraudulent practices, protection of privacy, safety and security.

  • All e-Commerce sites/apps available to Indian consumers (displaying prices in INR) must have MRPs on all packaged products, physical products and invoices….
  • In view of the misuse of the ‘gifting’ route, as an interim measure, all such parcels shall be banned, with the exception of life-saving drugs.

Consumer/Business Payments from Indian banks and payment gateways to unauthorized and unregistered (GST non-compliant) sites/apps shall be barred.

  • E-commerce entities would be mandated to make a full disclosure to the consumer regarding the purpose and use of data collection upfront, in a simplified and an easily understandable form on their websites/ application interfaces.

3. Anti-counterfeiting measures, trademark violations

  • Seller details should be made available on marketplace website for all products including: full name of the seller (legal entity), address and contact details including email and phone number.
  • Sellers must provide an undertaking about genuineness of products they are selling and make this accessible to consumers

Trade mark (TM) owners shall be given the option to register themselves with e-commerce platforms. Whenever a trade-marked product is uploaded for sale on the platform, the platform shall notify the respective TM owner. This facility shall be put in place by platforms and made available for interested TM owners.

  • In case TM owners so desire, e-commerce platforms shall not list/offer for sale, any of the owners’ products without prior concurrence. However, in case TM owners choose to opt for this, they would have to undertake to respond to platforms within a certain time limit.
  • In case of specified high value (luxury) goods, cosmetics or goods having impact on public health, marketplaces will be required to seek TM owner’s authorization (that is, authorized/distributor/reseller agreement) before listing the product.

In case a complaint is received about a product being fake/counterfeit, the same shall be conveyed within 12 hours to the owner of the TM. If the owner of a TM informs the platform about the product being sold on its platform to be counterfeit, it shall notify the seller and if the seller is unable to provide evidence that the product is genuine, it shall take down its listing and notify the TM owner of the same… 

  • The platform shall enter into an agreement with each of the sellers on its platform, under which it shall obtain guarantee of authenticity and genuineness of the products sold by the seller, and also provide for consequences of violation of the same. It shall also seek a guarantee from the sellers that the product has not been impaired in any manner and that all warranties and guarantees of the brand owner are applicable and shall be honoured accordingly. Products of any sellers who are unable to provide such a guarantee shall not be listed on the platform.

In case a customer makes a complaint about a counterfeit product, marketplaces would have liability to return the amount paid by the customer. In addition, the marketplaces shall cease to host the counterfeited product on their platform, thereby taking down every information related to the product.

  • Marketplaces should provide for creation of financial disincentives for sellers if found to be selling counterfeit products. In addition, if a seller is found to be selling counterfeit products, the marketplace should blacklist that seller from selling on its platform for a specified period.

4. Addressing piracy

  • Intermediaries shall put in place measures to prevent online dissemination of pirated content. Intermediaries shall identify ‘trusted entities’, whose complaints are resolved on priority. The identification of trusted entity and anti-piracy measures shall be done on a voluntary basis.
  • Upon being notified by the owner of copyright protected content/work that a website or e-commerce platform is making available, selling or distributing the copyrighted content/work without the prior permission/authorization of the owner, such website or platform should expeditiously remove or disable access to the alleged content.

A body of industry stakeholders will be created that shall identify ‘rogue websites’ which host pirated content. After verification, these rogue websites shall be included in the “Infringing Websites list’ (IWL). This shall invite the following:

  1. Internet service providers shall remove or disable access to the websites identified in the IWL within set time-lines.
  2. Rogue websites earn their revenues through online payments made based on a subscription or advertisement revenue models. Such payments have to be routed through Payment Gateways, which shall not permit flow of payments to or from such rogue websites.
  3. Search Engines shall take necessary steps to remove websites identified in the IWL, in their search results.
  4. Advertisers or advertising agencies shall not host any advertisements on the websites identified in the IWL.

5. Ratings and Reviews

  • All ratings and reviews for verified purchases must be published as registered by the consumer, except those found to be promotional, abusive or inappropriate in a community setting.
  • Marketplaces are required to devise mechanisms to prevent fraudulent reviews and ratings by the sellers and their affiliates.

6. Customer Service

  • Publication/display of phone number and email address for consumer grievances is mandatory for all ecommerce sites and applications where purchase and sale of products is taking place.
  • A system of acknowledgment of consumer complaints to be put in place as well as clear cut timelines for their disposal. These timelines are to be displayed prominently on the website/ application.
  • A first resolution to all consumer complaints must be provided within 1 week.

7. Prevention of Sale of Prohibited Items

  • Websites or applications where purchase-sale of products take place, must display list of products which are prohibited, as prescribed by DGFT or any other competent authority, on their site.
  • Sellers must provide an undertaking to the platform/site/application that they are not engaged in transacting in such products, and made accessible to consumers.
  • In case it is found that products being sold are prohibited, or a complaint to that effect is received, the platform shall immediately remove the listing or other reference to the product in 24 hours. Such sellers shall also be blacklisted from the platform and the relevant authorities notified.
  • The liability of the platform in case used for sale of prohibited goods shall be determined as per provisions of law.

Consumer protection, and regulation of spam

  • The atypical nature of an e-commerce transaction necessitates a consumer protection framework specific to this sector.
  • India will move towards a system for electronic redressal of grievances including making available compensation to the aggrieved consumer electronically. In this regard, mechanisms will be developed to establish e-consumer courts as part of the mission mode e-government project in order to address grievances online.
  • Unsolicited commercial messages (on various platforms including but not limited to SMSs, emails etc.) and calls will be regulated. A legal framework for this will be developed.

On regulation issues and how to address them

  • Ecommerce selling at loss and ‘cash burning’ and capital burning had anti-competitive consequences. “Authorities struggle to tax. Regulators find it difficult to hold entities responsible, that have physical presence hundreds of millions of miles away.”
  • “Governments are finding existing regulations and structures inadequate to deal with issues thrown up by the digital economy…. Barriers to entry are especially difficult for start-ups and small businesses to breach.”
  • “While one may see these companies prosper, but more often than not, it is the shareholders of these huge online companies who rake in the money.”

Strategies to address regulatory issues

  • The Standing Group of Secretaries on e-commerce (SGoS) shall give recommendations to address policy challenges… It will continue to be important in administering the e-commerce policy.
  • “… Wherever (changes) impinge upon e-commerce or the digital economy, it is essential that the views of the nodal ministry are taken.”
  • It is the responsibility of DPIIT to see to it that the needs of the (ecommerce) sector are adequately met… regulations should evolve to facilitate the sector and  not become an obstacle for the Indian economy.
  • “States have been given constitutionally mandated rights to administer in certain areas.”
  • … E-commerce (when it takes place within the country) falls under the category of inter-state trade and commerce, it has been allocated to the Centre under Schedule VII of the Constitution. It is the Centre’s responsibility to ensure its growth and make rules.’

Other relevant issues

  • Small enterprises and start-ups: “… small firms and start-ups attempting to enter the digital sector can be given ‘infant-industry’ status.
  • Integration of small enterprises and MSMEs in the digital sphere is important. In order to ease the process, of onboarding, for MSMEs and to provide them best practices, platforms, where they already exist, (like e-lala, Tribes India) will be strengthened.
  • It is important to move to the concept of ‘significant economic presence’ as the basis for determining ‘permanent establishment’ for the purpose of allocating profits of multinational enterprises between ‘resident’ and ‘source’ countries and expanding the scope of ‘income deemed to accrue or arise in India’ under Section 9(1)(i) of the Income-tax Act, 1961.
  • The current practice of not imposing custom duties on electronic transmissions must be reviewed in the light of the changing digital economy and the increased role that additive manufacturing is expected to take.

Issues related to payment processes and other financial transactions which are inherent to e-commerce will be addressed in order to prevent data-leaks/theft, protect privacy and sensitive data, and enabling secured transactions.

  • Environmentally sustainable growth: To further the Swachh Bharat Abhiyan, suitable policy will be devised to promote “reduce, reuse and recycle” practices by stakeholders.

Exemption from content liability: “… it is important to emphasize on responsibility and liability of these platforms and social media to ensure genuineness of any information posted on their websites.”

Export promotion

  • ‘Factors like the policy regime, regulatory, administrative or economic certainty, market structure, and firm and industry characteristics decide whether the export potential of a business entity is realised. These confounding factors should be suitably controlled.’
  • ‘The Government should promote and facilitate exports through e-Commerce by incentivizing exports and reducing administrative requirements and costs along with simplifying procedures related to compliances.’

Export strategies

  • Infrastructure development… In this regard, the proposed National Integrated Logistics Policy must take into account the special needs of the sector. e-Commerce must be dealt with separately under the Logistics Policy.
  • Lower selling price, coupled with reduced costs associated with marketing and outreach activities over a digital platform contribute to promoting online sales…. In this regard, the existing limit of INR 25,000 shall be increased to make Indian e-commerce exports attractive even for high-value shipments through courier mode.
  • “… In this regard, it may be contemplated whether production of payment transaction reference number or consignment number could suffice the requirements of Postal Bill of Exports (PBE).”
  • “…. Therefore, implementation of Customs Electronic Data Interchange (EDI) platform mode at courier terminals shall be fast tracked to facilitate quicker and easy dispatch of export consignments.”
  • Therefore, the provisions for collecting fee on applications submitted to claim export benefits should be done away with to reduce the transaction costs for MSMEs and start-ups.
  • Commercial banks impose a charge of INR 100 per shipping bill for Bank Realization Certificate (BRC) processing. If EDPMS data can be sourced from RBI, then necessity for obtaining BRC for claiming MEIS can be avoided. DGFT may explore this possibility in consultation with RBI.
  • “… setting up of Air Freight Stations (AFS) off the air ports shall be encouraged, where all necessary cargo preparation and documentation can be done. Only the ‘flight ready cargo’ will move from the AFS in customs bond and enter the airport premises and get scanned at the airport before boarding the flights.”
  • “… the wide network of India Post shall be leveraged to negotiate lower costs with international freight carriers.”

Post script or “The Vision”

  • The Government of India will continue to observe the rapid changes in the digital economy and respond accordingly by bringing new regulations and/or amending the existing ones.
  • Issues related to e-commerce must now be addressed on priority and in a way that the pace of growth in the sector does not lag while the domestic stakeholders as well as the entire population is benefitted by the positive spillovers.
  • Given the fact that e-commerce involves cross-cutting issues –inter-departmental as well as across various governments (Central and State) – as time progresses, an evaluation may be made of the merits of a single legislation.