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How India handles e-commerce and open network protocols is being called into question

A roundtable on the ONDC digital project highlights all the shortcomings of the draft e-commerce rules that are in the way.

“There’s a lack of clarity about what e-commerce regulation is intended to do, and it is looking in the wrong places for where the problems are,” said Vikram Sinha of IDFC Institute, at a media roundtable organised by Chase India to discuss the government’s proposed Open Network for Digital Commerce (ONDC). He added that the draft e-commerce rules need to recognise that pain points exist on the business end of the spectrum instead of the consumer end. 

India’s proposed amendments to the e-commerce rules were conceived as a response to antitrust complaints against e-commerce giants like Amazon and Flipkart. The changes include new rules to limit who can sell on marketplace platforms, the establishment of a grievance redressal mechanism, new display and labelling criteria for foreign goods, the prohibition of flash sales, restrictions on promotions, fall-back liability, among other things. But the proposed rules were met with severe criticism from almost all quarters, including from within the government itself.

Read: Summary of the proposed amendments to E-Commerce Rules, 2020

“I don’t see the regulations address problems like unilateral rewriting of contracts, and customised contracts that are essentially extortionary that businesses face on intermediary platforms. The problem is that when you do not look at these issues then it does not matter if you build an ONDC because you’re still going to face market consolidation,” Sinha responded when asked about the shortcomings of the proposed rules.  

He was also skeptical about the ability of regulators to extract “algorithmic transparency” needed for enforcement. Algorithms employed by platforms are so complex that it is impossible for even experts to sniff out manipulation, Sinha said.  

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Will ONDC be enough to counter large e-commerce companies?  

Parminder Jeet Singh, Executive Director, IT for Change, detailed the haphazard manner in which steps towards e-commerce regulation were taken during the session. 

‘ONDC is the right direction’

  • “It [ONDC] is touted as the UPI of digital commerce. It is the right direction. The problem with ONDC is that it is technical infrastructure. The technical layer would be inadequate for e-commerce and its complexities. It will be easier to have interoperable social media than digital commerce because there are no physical things to exchange and return and assess quality,” Parminder Singh explained. 
  • “I’m taking this example to say that making standards is easy. Nothing comes of it.  How do you make sure that the players operate along those standards? UPI was easy because finance is a regulated sector. If you have to do it in social media or in commerce, you have to regulate it first,” he suggested.
  • “Don’t just decentralize network power. There is a network but the power has been superseded by data and AI power. A platform is not just a network, but a repository of data and AI. One needs to add data infrastructures which will support the open networks,” he said in response to a question by Subhashish Bhadra, Principal, Omidyar Network India

‘Draft e-commerce rules are being pushed into consumer rules’

  • “The main instrument of regulation (for e-commerce) even today is the Foreign Direct Investment (FDI) rules. Taking the path of the consumer rules is as stupid as the path of FDI,” Singh said. 
  • “While some consumer protections are needed, trying to regulate other actors like creators, and small businesses. It is the wrong method which has been applied,” Singh said.  
  • “The main regulation is that there should not be vertical integration between the traders and the platform. It’s why the Reliances and the Tatas of this world who were banking on this exception to make it big in e-commerce are unhappy,” he explained. 

What is India’s approach vis-à-vis other countries?

Vikram Sinha believes that other countries have clarity over whom they want to target with regulation. 

  • “What is common between the European approach and the US approach is that it’s calibrated in terms of their targets. There are specific quantitative metrics than mechanisms for saying: ‘We don’t fall under the ambit of these rules. Can we reassess this?’. We lack this entirely given that this is ex ante regulation,” he complained.
  • “The target should be the behavior of large platforms which play an essential role in the market because they bring two sides of the market that had no way of connecting earlier. But we should not place that sort of burden on every small omni-channel retailer who has nothing to do with these issues,” he told the roundtable.  

‘We need an act like the Digital Markets Act’

  • “I agree with Vikram that I think digital markets should be a composite legislation which would both deal with the consumers and the intermediaries who are completely dislocated and pulverised in this new rendition of what commerce becomes post these Rules. The Digital Market Acts is so good and they have written it so well that you can cut and paste most of it,” Singh advised.
  • “We disagree with the IDFC submission which seems to be regulation-skeptic, and we are pro regulation. We should take some losses of efficiency for the sake of getting the structures right. The focus on efficiency will produce an economic structure, which would not only be iniquitous but will create social unrest and would be detrimental to consumers in the long run,” Singh said. 
  • “The consumer rules are one of the worst drafts I’ve seen anywhere,” Singh said. 

What do we know about ONDC?

The Union government floated ONDC as a digital project in 2020 to set protocols for cataloguing, vendor discovery, price discovery, and standardise the process of onboarding retailers onto e-marketplaces as well as the supply and delivery of products through online channels.

The project was launched in parallel with the amendments to the e-commerce rules. The government set up a steering committee in November last year to formulate, implement, and provide policy oversight on ONDC. The Department for Promotion of Industry and Internal Trade (DPIIT) has assigned the work of carrying out a pilot for ONDC to the Quality Council of India.

The DPIIT has also formulated an advisory council for ONDC with nine members in July this year. They are:

  1. R.S. Sharma, CEO, National Health Authority
  2. Nandan M. Nilekani, non-executive Chairman of Infosys
  3. Adil Zainulbhai, Chairman, QCI and Capacity Building Commission
  4. Anjali Bansal, Founder & Chairperson, Avaana Capital
  5. Arvind Gupta, Co-founder & Head, Digital India Foundation
  6. Dilip Asbe, MD & CEO, NPCI
  7. Suresh Sethi, MD & CEO, NSDL
  8. Praveen Khandelwal, Secretary-General, CAIT
  9. Kumar Rajagopalan, CEO, RAI

The members will be expected to advise the government on measures needed to design and accelerate the adoption of ONDC.

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I cover several beats such as Crypto, Telecom, and OTT at MediaNama. I can be found loitering at my local theatre when I am off work consuming movies by the dozen.

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