The ministry of commerce and industry has announced the constitution of a think-tank which has been tasked with the responsibility of arriving at a National e-commerce policy in six months.
Ecommerce has had a transformative impact on consumers and businesses. It is also an area where the regulatory framework governing e-commerce transactions, practically all over the world, is playing catch-up with the growth of technology and economic practices. The government’s initiative therefore presents an opportunity to frame a facilitative framework to address issues facing ecommerce services providers, as well as concerns of consumers.
Segregating “Indian” and “Foreign”
It is in this context that the government’s exclusion of key players such as Amazon, Facebook, Google and Uber from the think-tank is a cause for concern. The underlying assumption appears to be that Flipkart, Snapdeal, Ola and Paytm are ‘homegrown’ since their promoters are of Indian origin and have a rightful place in the task force whereas the multinationals need to be kept out.
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This simplistic assumption, however, belies the fact that in an increasingly globalised and interconnected world, and with a fairly liberalised FDI regime for e-commerce in India based on the marketplace model, the lines are blurred between what are ‘domestic’ and ‘foreign controlled’. Amazon India is an Indian company, and a 100% subsidiary of the US-based Amazon. Flipkart has a complex structure, which can all be traced to the ultimate holding company in Singapore — Flipkart Private Limited, which has investments in Flipkart’s Indian subsidiaries. The Indian-origin promoters of Flipkart, the Bansal brothers, have less than 20% stake in Flipkart and significant shareholding in Flipkart until recently was vested with the American investment company Tiger Global, and China’s Tencent Holdings.
Recently, tech investor Softbank of Japan acquired one-fifth of Flipkart’s shareholding for $2.5 billion, billed as the biggest private investment in India’s consumer technology sector. It is now known that both Walmart and Amazon have offered to acquire a stake in Flipkart, and whether the Bansals retain their shares after such acquisition, remains to be seen. Softbank also has stakes in other ecommerce entities in India, including Ola, Paytm and InMobi. China’s Alibaba and Ant Financial are reported to have over 40% shareholding in Paytm.
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In this context, the country’s ecommerce policy necessarily needs to have the inputs from all players in the country’s ecommerce space. A nationality driven approach is misplaced, since there is truly no company in the Indian ecommerce space owned/controlled by Indian nationals. It will also not serve any purpose because the growth pattern of each of the companies reveals significance of global capital in sustaining innovation and entrepreneurship. An exclusionary approach at the stage of constituting a think-tank itself sends a wrong signal about what the government’s ultimate objective may be.
Regulation for Growth and Not Stifling Innovation
It is clear that the ecommerce think-tank will have several areas to think through and arrive at suggestions for effective regulation. The government’s has said the focus will be on physical and digital infrastructure, regulatory regime, taxation policy, data flows, server localisation, intellectual property rights protection, FDI, technology flows, skill development and trade-related aspects.
The tightrope walk in each of these areas is to ensure that the regulatory framework does not become excessive, and instead achieves the core objective of attracting investments and encouraging the growth of competition and innovation.
Globally, the main fear of the big technological giants has been their ability to penetrate markets with capital and potentially present entry barriers for new players. This needs to be addressed in a logical manner through the lens of competition law, rather than simply branding companies as good or bad based on nationality.
India’s current competition law is rooted in the principle that dominance in itself is not bad; it’s the abuse of dominance that needs to be checked. In the context of ecommerce and the digital economy, this essentially translates into ensuring that there is no abuse or unfair use of the key resource, i.e., data, and that the legal framework enables healthy competition.
A robust framework for facilitating growth of ecommerce will help India capitalise on the significant advantage that it already has in terms of availability of IT skills. On the other hand, excessive regulation, or an unduly protectionist approach to regulation will simply be counter-productive.
RV Anuradha is Partner, Clarus Law Associates, New Delhi, and specialises in international economic laws.