Towards an India e-commerce policy

A broader approach to e-commerce will help establish greater policy certainty which can drive growth. Photo: iStockphoto

The ministry of commerce is undertaking several rounds of consultations on an e-commerce policy framework for India. This is being done through a think tank constituted of “Indian” tech companies, relevant government bodies, industry associations, civil society and research institutions. The decision to constitute this think tank follows from both domestic and international compulsions. The domestic trigger is largely a fear of ceding the fast-growing e-commerce market to foreign interests, as exemplified by the rhetoric around the recent sale of Flipkart to Walmart. Simultaneously, India is under intense pressure to negotiate international rules on e-commerce under the World Trade Organization (WTO). Naturally, this think tank must carefully evaluate intersections between future domestic and international policy frameworks.

While the e-commerce think tank is ostensibly supposed to be of a multi-stakeholder format, some voices are louder and more prominently represented than others. Accompanied by the facts that the history of the Indian private sector’s policy demands from government is chequered with short-termism, and that policy research on the exigencies of the “new economy” is still in its infancy, the government has its task cut out.

To be fair, many within the government recognize that a sober and holistic assessment is required to balance domestic and international concerns, particularly since e-commerce is already shaping the new contours of international trade. For instance, e-commerce has featured in high-level discussions on each of the mega-free trade agreements, including the Regional Comprehensive Economic Partnership (RCEP) of which India is a part. India has resisted the inclusion of e-commerce in RCEP, a position backed by domestic mercantile lobbies. More importantly, the WTO also anticipated a high degree of global attention to e-commerce and established a related “work programme” in 1998. Despite its high stakes in the multilateral system and now also in digital markets, India has maintained a reticent stance even in this forum.

The WTO work programme covers different aspects of e-commerce not limited to e-retail. It examines issues arising from “the production, distribution, marketing, sale or delivery of goods and services by electronic means”, which is the de facto multilateral definition of e-commerce. India has only played a nominal role in the work programme, even though the discussions are consultative in nature. Perhaps limited engagement is a function of the lack of specialist capacity within government, which may partly be overcome through lateral entries. But this capacity building will take time. Meanwhile, Indian negotiators were caught completely off-guard at the 11th WTO ministerial conference last year. Over 70 countries advocated for formal introduction of e-commerce related issues into the Doha Round of negotiations, in a marked departure from disaggregated advocacy through the US and EU-led interest groups in the past.

In days when globalization worked in the favour of advanced countries, they favoured this system over all others. Today, countries such as the US are virtually abandoning multilateralism in favour of a reversion to exceptionalism and mercantilism. It is up to large developing economies such as India to sense and respond to the winds of change. The country must become a propositional leader in the multilateral sphere, rather than embracing inertia or negativity. This transition will require internal clarity on economic and political goals, with well-defined milestones to achieve them.

To begin with, the think tank should adopt an appropriate definitional framework for accommodating a broad vision of e-commerce. India’s operating definition of e-commerce derives from foreign direct investment policy, according to which: “e-commerce means buying and selling of goods and services, including digital products over digital and electronic network(s)”. This is a very narrow point of departure, envisioned only for e-retail through a “marketplace-based” model. And marketplaces are disallowed from influencing the price of goods or services. Consequently, it is possible to interpret that several services-driven e-commerce companies, such as those operating taxi-aggregation services, currently function in violation of policy. The extant definition also excludes data-driven internet companies which do not engage in front end transactions. A broader approach will help establish greater policy certainty which can drive economic growth.

The recommendations of the think tank should also uphold WTO principles such as “national treatment”, to preserve the larger multilateral ethos. Most bilateral investment treaties inked by India also include national treatment clauses, which prevent discrimination between foreign and domestic investments. The think tank could easily seek support for Indian companies, which no foreign entity could call out as discriminatory, such as asking for fiscal farsightedness within an accommodative tax policy or scientific research grants for the tech sector. Earlier in May, the Delhi high court refused to restrain international arbitration initiated by Vodafone and underlined that India should not invoke domestic law for its failure to perform international obligations. The think tank must therefore suggest ways that will insulate India from future international proceedings, and help the government signal that the country is open for business on fair and equitable terms.