Govt to fine-tune e-commerce rules; panel formed to look into issue

The government has set up a group of secretaries to review a recently released draft ecommerce policy, which has drawn severe criticism from many stakeholders, a senior official confirmed. The nascent but booming online retail space has largely been without regulations until a task force led by then commerce secretary Rita Teaotia put together the draft policy.

However, the policy faced backlash over its suggestions dealing with data localisation, curbing deep discounting which has been the mainstay of online retailers and Foreign Direct Investment (FDI) norms. Commerce minister Suresh Prabhu had then directed officials to address stakeholders' concerns over the draft policy.

The new group will be chaired by the secretary in the department of industrial policy and promotion (DIPP).  Secretaries of the IT ministry and department of commerce as well as representatives of Niti Aayog and the department of economic affairs are other members of the group.

It will likely hold its first meeting this week and will look into all issues pertaining to the e-commerce sector, the official said. A clear policy is seen as crucial to promote the sector by achieving consensus among stakeholders and policymakers in order to respond to a proposal for multilateral discipline in e-commerce at the World Trade Organisation.

The initial draft policy recommended that online retail firms should be told to store user data exclusively in India over security and privacy concerns. Incidentally, this was also a part of the recommendations by Justice BN Srikrishna-led panel on data privacy. The draft also notified discounting rules under Press note 3, which says that a group company of an online retailer or marketplace may not be allowed to directly or indirectly influence the price or sale of products and services on its platform. This could potentially restrict online players from offering deep discounts. Additionally, the draft suggests setting a maximum timeframe for online players to offer such discounts. The draft also recommended allowing 49 per cent FDI in inventory-based e-commerce models as well. At present, FDI is allowed only in the marketplace model.

The Press Note 3 also prohibits direct or indirect inventory ownership by e-marketplaces as a way to ensure that ecommerce players with deep-pocketed foreign investors will not threaten local players. Amazon, Flipkart and Snapdeal follow a marketplace model where they essentially act as a platform connecting sellers and buyers as opposed to an inventory-based model, where they hold the goods. This comes close on the heels of the NCLAT asking US retail major WalMart, which has bought homegrown online retailer Flipkart for $16 billion, to explain their way of doing business in India.