ECommerce Sector: Why India’s e-commerce sector doesn’t need a one-size-fits-all regulatory intervention – The Economic Times

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The not-so-rosy flip side comprises the growing discontent among business users of ecommerce platforms and the regulatory muddle that defines Indian ecommerce today. The best-case scenario is one where innovation thrives as multiple platforms compete for not only buyers but also for sellers of goods and services.

Vedika Mittal Kumar

Vedika Mittal Kumar

Team lead, competition, Vidhi Centre for Legal Policy, New DelhiThe Indian ecommerce story is two-faced. The bright side boasts of examples such as the mega IPO of Nykaa that catapulted Falguni Nayar into the exclusive billionaire’s list, unicorns generated by riding on ecommerce, the opportunity ecommerce has presented to individuals such as home chefs and artists and their micro-businesses.

The not-so-rosy flip side comprises the growing discontent among business users of ecommerce platforms and the regulatory muddle that defines Indian ecommerce today. These business users form the backbone of ecommerce, be it mobile sellers on Flipkart and Amazon, restaurants listed on Swiggy andZomato, or hotels on MakeMyTrip. The regulatory muddle is equally significant, as sooner or later its impact will be felt on the ecommerce ecosystem. The worst-case scenario is absolute monopoly/oligopoly. The best-case scenario is one where innovation thrives as multiple platforms compete for not only buyers but also for sellers of goods and services.

So, what is keeping the best-case scenario at bay? Two words: regulatory inaction. Status quo certainly does not suffice. For example, the Draft National eCommerce Policy, 2019, and the Consumer Protection (eCommerce) Rules, 2020, are consumer welfare-centric and do not meaningfully solve any of the issues arising between ecommerce platforms and their business users (P2B issues).

The foreign direct investment (FDI) policy, which looks at P2B issues, is hardly ever enforced and is limited in its applicability to foreign-funded platforms. The Intermediary Guidelines, 2021, enacted under the IT Act, are targeted at social media intermediaries, news publishers and news aggregators, leaving most of ecommerce outside its scope. That leaves us with the Competition Act, 2002, enforced by the Competition Commission of India (CCI).

First, any order passed under the Competition Act is applicable only to the specific facts of, and parties to, the case. So, effectively, setting the rules of the game would mean several cases covering various factual scenarios being litigated first before the CCI, then its appellate body, the National Company Law Appellate Tribunal (NCLAT), and finally the Supreme Court. This is a highly ineffective, expensive and time-consuming way to govern ecommerce, which is agile and thrives on speed and efficiency.

Ideas That Click
A relatively new and maverick regulatory response is the Open Network for Digital Commerce (ONDC) project, reportedly being helmed by the Department for Promotion of Industry and Internal Trade (DPIIT) under the commerce and industry ministry. Publicly available information on the ONDC project is sketchy, but it seems like various ecommerce services such as cataloguing will be unbundled and standardised in an attempt to simplify access to ecommerce for small business users.

One’s reservations about the ONDC project are threefold. One, existing ecommerce companies score extremely well on user interface, including cataloguing, delivery timelines and payments. So, users will not overnight abandon the convenience they offer. Does the ONDC want to undo years of propriety progress and innovation that has driven the astounding success of ecommerce so far?

Two, founders, investors and shareholders of existing ecommerce companies cannot be reasonably expected to let their business in one of the largest ecommerce markets in the world be usurped in this fashion. So, realistically, intense lobbying and delay tactics must be expected before ONDC takes flight meaningfully. At best, it will be a long-term and well-bargained compromise.

Three, even globally, interoperability is viewed as a complementary solution that exists alongside regulation of anti-competitive practices such as self-preferencing, unfair contract terms and deep discounting. For example, the US House Judiciary Committee passed a slew of bills last year that did both – promote interoperability as well as curtail self-preferencing.

In sum, neither existing laws and regulatory tools nor the ONDC project are ‘substitutes’ for devising a solid regulatory framework to govern existing gatekeeper online platforms. So, what form must regulatory intervention take?

Vidhi Centre for Legal Policy’s December 2021 working paper, ‘Fair and Competitive e-Marketplaces (FACE): The Business Users’ Narrative’ ( 3mWZHqY), recommends a two-part solution. Step 1 is to maximise effective use of existing legal tools, including the Competition Act and the FDI policy, and to build capacity.

Step 2 is to seriously begin work on new ex ante regulatory tools that effectively set the rules of the game for ‘gatekeeper’ ecommerce platforms.

Gatekeeper platforms can be identified based on objective criteria, such as the number of active users, volume of transactions, etc. Platforms that do not meet these criteria must not be subjected to the same ex ante laws and be allowed to scale up. Once identified, gatekeeper platforms must be required to follow a mandatory code of conduct tailored to their business model.

Cracking the Code
While formulating individual codes of conducts will be resource-intensive, it is a workable solution, because a handful of gatekeeper platforms are expected to be covered, and given how diverse the business models and monetisation schemes of digital platforms are, a one-size-fits-all approach will simply not do.

As is evident, Step 2 will require a lot of work and must begin at the earliest. Step 1 is a stopgap solution, and serious consequences await if we don’t treat it so.

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