E-commerce: Excessive regulations can undermine the sector’s growth potential - Hindustan Times
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E-commerce: Excessive regulations can undermine the sector’s growth potential

ByLalit Bhasin
Jun 28, 2021 03:00 PM IST

Over-regulation tends to curb competition and create monopolies instead of ensuring its holistic growth dovetailed with fair competition. PM Modi has been highlighting the need for self-regulation in place of statutory/administrative regulations. This is the approach required for this sector as well

The past few years have witnessed numerous regulations that have been proposed to streamline/regulate the e-commerce sector. The government has released multiple drafts of the e-commerce policy and, in parallel, has also brought out clarifications of foreign direct investment (FDI) norms and the draft Personal Data Protection Bill, all of which have a direct or indirect bearing on the sector.

Representational Image. (Getty Images/iStockphoto) PREMIUM
Representational Image. (Getty Images/iStockphoto)

While there is no denying that streamlining the growth of the sector is important given its market potential, one has to be mindful that this is a nascent sector and accounts for only four per cent of the total retail market in India. Over-regulation tends to curb competition and create monopolies instead of ensuring its holistic growth dovetailed with fair competition. Prime Minister Narendra Modi has been highlighting the need for self-regulation in place of statutory/administrative regulations. This is the approach required for this sector as well.

The most recent addition to this long list of regulations trying to govern e-commerce are the proposed amendments to the E-commerce Rules under the Consumer Protection Act. These amendments, on the face of it, would make the operating framework for e-commerce entities in India much more complex due to the compliance requirements that may be covered in existing regulations as well.

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The proposed amendments seem to have an overlap with existing regulations under FDI norms and Competition Law. Clauses about related party transactions and exercising control over sellers, in case of marketplaces, have been addressed through existing FDI press regulations.

For instance, the current amendments propose that “Every e-commerce entity which intends to operate in India shall register itself with the Department for Promotion of Industry and Internal Trade (DPIIT) within such period as prescribed by DPIIT for allotment of a registration number”..“Provided that the DPIIT may extend the period for registration of such ecommerce entity for sufficient reason, to be recorded in writing”.

E-commerce firms in question are already registered in India with the Ministry of Corporate Affairs (MCA), with the government having access to the requisite data. Unlike any company that is registered only once, does this imply that e-commerce firms will be registered for a certain time period only and would have to go through the process again, every time the registration deadline comes up? One can say with certainty that this could not have been the intention on the part of the government as it will create a licensing regime for the sector, which may again limit competition and become detrimental for consumers.

While the intent behind enacting these regulations is noble – to protect consumer interests – these complex regulations may result in bogging down a sector that has thrived and expanded to empower both consumers and sellers over the past few years.

Over the past 10 years, e-commerce has empowered consumers probably more than any other intervention. Through its network, it has reached every corner of the country and has created a parity between consumers from all sections, social and geographical strata. Consumers across the country have more and equal choice, increased accessibility, and convenience. With the plethora of choices available at a click of button, it has helped products/brands to reach even the remotest corners of the country.

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In the past year and a half, even as we live through the pandemic, e-commerce emerged as the hero in keeping the economic engine running by supporting MSME sellers to replenish inventories as well as catering to consumer demand during lockdown. Sellers have more access and ease of selling with reduced inventory and logistics costs.

Governments and private players across the globe are making efforts towards ramping up e-commerce capabilities and infrastructure to leverage this revolution and ensure that the economy at large benefits.

At this juncture, the government’s endeavor should be to create an ecosystem that helps the sector thrive as opposed to creating regulatory uncertainty and complexity. The government has repeatedly promised to facilitate ease of doing business, to do away with unnecessary compliance requirements, and encourage technology adoption. These proposed amendments, however, seem paradoxical to this promise and reminiscent of the license raj days.

When the time is ripe to open up the economy to encourage investments, these amendments will act as a disincentive for e-commerce companies and sellers.

Lalit Bhasin is the President of Society of Indian Law Firms

The views expressed are personal

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