Draft Ecommerce Policy: A Right Step Towards A Stronger India
August 15, 2018
The long-term vision behind the draft e-commerce policy needs to be recognized and the government should get the support it deserves to make it a reality
History is replete with examples of a change being resisted and the voice of reason being suppressed to serve vested interests. The din surrounding the recently introduced draft e-commerce policy points in that direction. It exposes how little knowledge can be detrimental to the country’s progress. Those opposing the policy by stating that it affects the rights of consumers are doing so without understanding the rationale behind the decision and have conveniently turned a blind eye to the macro economic advantages of the policy.
Before the policy is discussed in detail, it is important to list out its major features. Apart from the widely discussed regulation on discounts, the draft policy has suggested that Indian owned and Indian-controlled online market places can hold inventory as long as the products are 100% domestically produced; An ecommerce entity cannot allow more than 25% of the sales transacted on its marketplace from one vendor or group of companies; Personal data and community data collected by “Internet of Things” devices in public spaces need to be stored in India and for Indian founders with minority stakes, there should be differential voting rights given to them for more control.
For a layperson, this policy might not mean anything more than the end of ‘deep discounts’, but for a person who understands the way Indian economy functions, this draft ecommerce policy will herald a new beginning. It will usher in an India that is not at the mercy of foreign economic giants and that has finally broken free from the abuse of capitalism. Beyond the short-terms gains offered by the e-commerce sites lie a scary picture that strikes at the very foundation of India. The economic colonization through the digital space has become so normalized that seldom do people look at the bigger picture. Here, the parallel that can be drawn is to the East India Company which after gaining a foothold in India is 1600s went on to oppress a nation that was till then self-reliant. The thriving industries of the nation were brutally killed to make way for goods from Britain. What is happening in 2018 is no different from the strategy adopted by Britain to cripple India’s economy and pave way for subservient populace.
Perhaps the only difference in the present times is that with the use of technology the colonization that is happening is so complex that its true ramifications will become visible only when there is a total collapse of the system. “Lower prices” have become such an oft repeated term in today’s e-commerce that its ill-effects are least pondered over even by those who pride themselves in being eminent economists. The infusion of foreign capital in the e-commerce companies enable it to give discounts that make it impossible for smaller firms to remain in the race. Commonly referred to as “deep pockets” what it does is to kill competition and establish market monopoly. The unsuspecting customers lured by short term gains fail to see that they are not only killing Indian economy but are also being led into a situation where their buying choices will be dictated to them by the economic giants.
The market cannibalization that often happens when a parent company decides to replace their hugely successful product with a new one should be seen in this context. By doing so, they are effectively increasing their market share and occupying the space which was previously available for a new company for innovation. A domestic manufacturer whose initial capital infusion comes from the loan he has taken from the bank and who runs his/her business through honest means will not have the wherewithal to compete with firms that has the power to circumvent rules and fudge accounts to evade taxes. Every time an e-commerce site fails to deliver a product or deliver damaged goods, it needs to be understood that they use the sales figure to enhance their market capitalization on one hand and twist the same figures to report loses to the tune of several thousand crores.
Here the example of Flipkart brings to light the nonchalance with which such companies have been taking advantage of the loopholes in the existing laws. In April 2018, the income tax department demanded Rs 110 crore on an estimated profit of Rs 408 crore from Flipkart as tax assessed for 2015-16 after reclassifying the discounts and spending as capital expenditure. Despite the company reporting a loss of Rs 796 crore for the said period, the tax department opined that such spending created brand value and marketing intangibles for Flipkart which was not deductible and had to be capitalized. It also needs to be noted that this is the same site which was found to be the source of sale of arms in Aurangabad in May this year. It is not just the questionable trade practices of the online companies that is worrying, it is their all-pervasive nature which is robbing Indian economy of its unique characteristics that is the bigger cause of concern.
The reliance on big data by multinational corporations are by now well known. By making use of the data stored for their analytics, they have the power to tell people what to buy and condition their minds in such a way that stop seeking anything new. It is here that the Indian markets are biggest hit. Data provided by the Ministry of Micro Small and Medium Enterprises (MSMEs) show that 36.2 million MSMEs across the country have created four crore jobs in the last four years. Considering that each family has a minimum of four members, it means 16 crore people are dependent on this sector. And these are people who do not have accesses to high-end technology and who are at the receiving end of economic bullying by MNCs.
Most of the MSMEs operate in specific areas and do not have the resources to fight the artificial pricing unleashed by those with deep pockets. Because of this, most of them including the brick and mortar stores are forced to lead a hand to mouth existence. Their profit margins are abysmally low and many of its employees are forced to take up blue collar jobs once the enterprise collapses. It will be no exaggeration to say that by killing domestic markets, we are forcing an entire section to either migrate in search of greener pastures or do insignificant jobs in the supply chain. For the owners, life is even more difficult with the lack of interest among buyers- pushing many to the brink of bankruptcy. The staggering unemployment levels that such a situation can lead to remain hidden in the enticing sops doled out by foreign companies to strangle economic development.
Business, without a doubt is run by people, process and technology. But law and market process impact it. When technology changes, the consumer behavior also changes and there is a need for laws to update itself. Here, the Modi-led government deserves applause for righting the wrongs of its predecessor government and showing the audacity to make India self-reliant. The draft e-commerce policy has, by putting India first ensured that finally a level-playing field will be given to Indian manufacturers. The Indian manufacturing industry which would have in all probability died in the next 10 years or so have been given a new lease of life and new hopes that have been infused into the Indian economy.
The process started on April 24, 2018 when the think-tank led by commerce and industry minister Suresh Prabhu comprising comprised officials from ministries of finance, home affairs, corporate affairs, and electronics and information technology met to deliberate on issues related to e-commerce sector and cross-border digital trade. Representatives from industry chambers including CII, exporters body FIEO, MSME, telecom companies, IT and ecommerce firms including Bharti Enterprises, Reliance Jio, TCS, Wipro, Ola and Makemytrip were also part of that meeting. The need for non-discriminatory treatment of digital products, data localization and cross-border data flow were among the concerns raised.
Another fact that has escaped public notice is that India is fighting a bitter battle on e-commerce at the multilateral forums like the World Trade Organization (WTO). At present, under a WTO moratorium, countries cannot impose customs duties on cross-border e-commerce transactions, a clause that India wants to be done away with in the interest of domestic manufacturers. During the Buenos Aires Ministerial of WTO in December last year, 71 members led by countries like China, Japan and the US in a joint statement said they would initiate exploratory work towards future WTO negotiations on trade-related aspects of electronic commerce. This was an indication of the changing global discourse and how countries need to be differently equipped to deal with economic exploitation.
A recent study conducted jointly by Assocham and Deloitte has estimated that the e-commerce market India is expected to cross $50 billion in value by the end of 2018 from the current level of $38.5 billion, on the back of a growing internet population and increased online shoppers. By bringing in price regulation and data localization, the Indian government is trying to ensure that no undue advantage is taken of the data collected and prices are not artificially kept low to kill competition. The draft bill has also made provisions to make certain that one parent company does not get to control the market through its multiple subsidiaries and an Indian owner still has a say over the enterprise that he/she built up even if he/she does not own the majority stakes.
The long-term vision behind the draft e-commerce policy needs to be recognized and the government should get the support it deserves to make it a reality. If one is still not convinced about the benefits of the policy, then the case of how big pharmaceutical companies capitalized and cartelized penicillin may be recalled. A life saving drug was long denied to the developing countries for profit mongering. In the Indian context, simpler examples would be that of the airline ,cement and mobile cartels that resort to peak pricing to increase their profits. The time has come to free India from the clutches of multinational corporations and reclaim the country in its true glory. Self-reliance has always been the soul of Indian economy and if the draft economic policy goes through, it will take the country to heights that have never been scaled before.