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View from India: E-commerce policy boosts domestic digital economy

The Government of India (GoI) released its Draft National e-Commerce Policy on 23 February 2019. The policy proposes to set up a legal and technological framework for providing a basis for imposing restrictions on cross-border data flow.

The 41-page draft policy offers an insight into the six dimensions that constitute the e-commerce ecosystem. These include data, infrastructure development, e-commerce marketplaces, regulatory issues, stimulating the domestic digital economy and export promotion through e-commerce.    

The policy aims to create a facilitative regulatory environment for the growth of the e-commerce sector. The thrust is on domestic entrepreneurs, besides opening out channels that encourage the ‘Make in India’ vision. This can happen by ensuring that all stakeholders of the e-commerce system have unified opportunities.

Certain sections of the digital segment such as micro, small and medium enterprises (MSMEs), vendors and traders have limited access to the digital ecosystem. Such people will be empowered through skilling programmes. Institutional support will help familiarise them with technology. Apart from that, domestic research will be encouraged.

Norms have been laid out for organisations that collect or process sensitive data locally and store it abroad. Such data stored abroad shall not be made available to other business entities outside India, for any purpose, even with the customer consent. A foreign government cannot get hold of the data unless Indian authorities issue prior permission.

Coming to infrastructure, the physical infrastructure for setting up of data centres requires power supply and connectivity. Implementing agencies will help set up the infrastructure, while financing agencies will offer the necessary support. In the process, last-mile connectivity will be achieved as envisioned by the Digital India initiative.

In the case of online marketplaces, they should not adopt business models or strategies which are discriminatory in nature. In short, these models should not favour one or few sellers/traders operating on their platforms over others.

Cutting-edge technologies such as artificial intelligence (AI) and deep learning are all pervasive. When we look at the regulatory aspects, the policy emphasises the need for regulators and law makers to create dedicated ‘technology wings’ within their organisational set-ups for better clarity on the system.

When we look at the domestic digital economy, it’s essential to formulate domestic industrial standards to facilitate smart devices and IoT devices to meet the goals of the country. These include inter alia, consumer protection, secured transactions, enhanced interoperability and ease-of-user interface. The effort will take shape with the involvement of the national standard-setting organisations and other stakeholders.

Electronic commerce and data are key enablers for India’s economic growth. The National Integrated Logistics Plan, being prepared by the Department of Commerce, will also include e-commerce in its gamut for faster delivery of goods.

Exports are being incentivised through GoI’s schemes like Merchant Exports from India Scheme (MEIS) and Services Exports from India Scheme (SEIS) and policies such as repatriation of remittances out of exports through online payment gateway service providers (OPGSPs). GoI should also help exports by reducing administrative requirements and costs along with simplifying procedures related to compliances.

Still, the responsiveness towards e-commerce exports depends on issues such as on-boarding costs, compliance requirements and competitive pressures in the international market. Other factors include policy regime, regulatory, administrative or economic certainty, market structure and firm and industry characteristics. These confounding factors should be suitably controlled.

Moving beyond the draft policy, the startup ecosystem is all set to get a boost. The Department for Promotion of Industry and Internal Trade (DPIIT) has announced its decision to exclude start-ups from the ambit of Angel Tax.

The new notification, announced last week, is a seminal move from the government for angel investing and a step in the right direction towards the foundation of Start-up India 2.0. “The exemption not only acknowledges India to be the world’s fastest-growing start-up ecosystem, but will also encourage more investments flow for early-stage start-ups in India. The new notification has eliminated the requirement for start-ups to seek protection from the angel tax every time they want to raise funds,” said a statement from Nasscom (National Association of Software & Service Companies, India’s technology trade body).

A simple exclusion of all start-ups raising investments up to 25 crore does that for most start-ups. Removal of the need to justify valuation of investment will remove the tax uncertainties plaguing the provision. Further, excluding investment from listed companies and other eligible investors from the computation of the 25 crore threshold means that most start-ups will now not have to face this problem.

The start-ups already facing problems due to the existing provisions should be able to benefit from the revised proposal. The Government’s efforts to widen the definition of start-ups by increasing the turnover limit to Rs 100 crore are a welcome move.

“The issue of angel tax has been a continuous issue for the overall growth of Indian start-up ecosystem and ease of doing business. Nasscom had earlier raised specific concerns towards the abolition of angel tax provisions to boost investments in Start-up ecosystem,” the statement indicated.

Let’s hope that the e-commerce industry as well as start-ups propels the digital growth of the country.

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