SynopsisThe rules, as many stakeholders and consumer organizations feel, may prove counterproductive for the growth of e-commerce which has enabled small businesses in India to flourish.
The proposed draft e-commerce rules — currently open for public comments — have caused deep consternation among e-tailers and e-commerce sellers. Many sellers and consumers have opposed the rules, which seek to tighten the e-commerce sector. The rules, as many stakeholders and consumer organizations feel, may prove counterproductive for the growth of e-commerce which has enabled small businesses in India to flourish, contribute to digital India and sail the economy through pandemic, maintaining consumer choices despite constraints and social distancing.
Before the liberalization of 1991, we feared that if the economy was opened, international players would destroy domestic businesses and exploit the consumers. However, history proved that these fears unfounded. Competition drives innovation and wider choices for customers, adding to consumer welfare. Efficiencies, both static and dynamic, drive economic growth. It showed us that protectionism was detrimental to customers, and healthy market competition was the road to India’s economic freedom.
Similar is the story with e-commerce.
Major e-commerce companies like Flipkart, Amazon, eBay, rapidly growing startups turning into unicorns, even small enterprises brought in essential infrastructure to give a platform to our domestic sellers and MSMEs, connecting with markets, ensuring that our consumer reaps the benefits. Local businesses today can reach national and global markets without worrying about logistical costs. More than that, the ancillary businesses associated with e-commerce (like delivery partners, logistics) have led to massive employment opportunities. The potential of the e-commerce sector in India has also widened the scope of foreign direct investment (). However, the new rules can dismantle this growth.
The rules seek to increase compliance burden on e-tailers, and consequently on sellers. The biggest benefit of e-commerce platforms today is that sellers can focus on producing their goods, and e-tailers can focus on providing the best marketing experience. The phenomenal experience of China, USA, EU etc. demonstrates it. Easing of our Doing Business Rules was designed to spur growth and innovation. However, the new compliance norms might force entities to spend precious time, energy and money on factors not associated with business growth, having cost implications for their bottom line as well. For instance, the compulsory mandate to hire a grievance redressal officer and a nodal contact person for 24×7 coordination with law enforcement agencies would mean severe regulatory burden on a small company that’s just starting out. Even sellers who use larger e-commerce platforms without technical knowledge would find themselves stuck with heavy compliance norms. As a result, it will force many sellers still in nascent stages of business development to opt out of the race. This will have a severe impact on MSME growth in India.
ReutersE-commerce has created jobs in ancillary businesses like delivery partners, logistics, etc.The rules will also have an adverse impact on domestic and foreign investor sentiments. FDI brings in not only new technology and business opportunities but also creates massive employment opportunities. Arbitrary and multiple regulations may instill a sense of fear and uncertainty among investors and businesses. Organizations like US-India Business Council (USIBC), Tatas, MSMEs, Associations have already voiced concerns regarding the draft rules. The more we try to regulate, the more it will bind the economy in knots, with adverse long-term impact on India’s economic growth and employment.
The Covid-19 pandemic has proved that e-commerce is essential. Lockdowns and social distancing norms have jolted many businesses in India. Today’s economy is interconnected with inputs across segments and services. E-commerce played the role of an enabler across the economic value chain. In a pandemic-stricken world, many small artisans, women, craftsmen and businesses in remote areas depend on e-commerce for the marketing access and ability to grow their businesses from the precincts of homes.
The new rules don’t align with the larger narrative of Digital India and Atmanirbhar Bharat. Not only do they harm FDI and MNCs but also domestic sellers, as the cost of operating on e-commerce will exponentially increase. This will essentially cripple the MSME sector and ruin the progress we have recently achieved in terms of their digital onboarding in the pandemic. The new rules pose a serious threat to nascent businesses and sellers looking to capture the potential of the digital market ecosystem in India.
The e-commerce sector in India is still young and needs attention and policy aid to grow and flourish. We need to reduce the regulatory cholesterol, not increase it. This is the time to make sure that we do everything to ease regulations and bring as many sellers as we can into the world of digital retail and give them a growth-oriented environment and support where they can contribute to making India a $5 trillion economy.
Dhanendra Kumar is the former Chairman of the Competition Commission of India and Executive Director for India at the World Bank. He is the founder Chairman of Competition Advisory Services, a strategic advisory firm.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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