Parliamentary Standing Committee on Commerce Publishes Report on ‘Promotion and Regulation of e-Commerce in India’

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Parliamentary Standing Committee on Commerce Publishes Report on ‘Promotion and Regulation of e-Commerce in India’

Garima Prakash

@GarimaP

June 22, 2022

Public Policy

566

On June 15, 2022, the Department related Parliamentary Standing Committee on Commerce (the Committee), headed by Shri V. Vijayasai Reddy, presented its report on ‘Promotion and Regulation of E-Commerce in India’. The Committee examined the current regulatory regime for e-commerce in India in consultation with the Department for Promotion of Industry and Internal Trade (DPIIT), the Department of Revenue and the industry. The observations and recommendations of the committee include formulation of the National E-Commerce Policy at the earliest and filling the regulatory and enforcement gaps in the e-commerce ecosystem.

Summary of recommendations made by the Committee:

Collection of e-commerce data by DPIIT: e-Commerce data (including share of e-commerce market in GDP and direct/indirect employment generated by the sector), is crucial in data-based policy formulation. Therefore, DPIIT should maintain appropriate data regarding e-commerce and make it readily available.
Requirement for e-commerce companies to register with DPIIT: e-Commerce companies should be mandatorily registered with DPIIT, via a simple registration process to help streamline the regulation of e-commerce in India.
Foreign Direct Investment (FDI) Policy: FDI policy addresses anti-competitive practices only in a limited way as it applies only to foreign funded e-commerce entities.
1. DPIIT should formulate a comprehensive framework to regulate e-commerce and include it in the national e-commerce policy.
2. The enforcement mechanism under the FDI policy should be strengthened and proactive actions taken against e-commerce entities found to be flouting the FDI rules.
3. A stable FDI policy regime should be ensured in the e-commerce sector to bring about certainty and boost the confidence of investors.
Consumer Protection:
1. Additional duties and liabilities sought to be introduced through the Draft Amendment of Consumer Protection (e-Commerce) Rules should be made applicable only to e-commerce entities that qualify a certain threshold.
2. Regulation of the e-commerce sector should be designed to avoid overlapping mandates of different government bodies or regulators.
3. A mechanism for co-operation between various Ministries and regulators must be devised for better enforcement, administrative efficiency, and ease of compliance for the industry.
4. Clarity on the scope and applicability of the prohibition on flash sales should be provided in the draft Amendment of Consumer Protection (e-Commerce) Rules.
Amendment of Competition Act, 2002 taking into account the realities of digital markets:
1. Need for amendments to the Competition Act, 2002:
  - The recommendations of the Competition Law Review Committee (CLRC) with respect to determining the ‘relevant geographical market’ and the ‘relevant product market’ should be implemented promptly.
  - The factors to determine the appreciable adverse effect to Competition, as laid out in Section 19(3) of the Competition Act, 2002, should be updated after due consultation with stakeholders. The Competition Commission of India (CCI) should be empowered to undertake necessary amendments to Section 19(3) of the Competition Act, 2003.
  - The Competition Act, 2002 should include quantitative criteria for the identification of certain big e-commerce entities or gatekeeper platforms. Thereafter, provisions be introduced on gatekeeper platforms for notification to CCI of their gatekeeper status, its bargaining position with respect to business users and consumers etc.
2. Guidance with respect to qualitative and quantitative parameters on dominance standards for digital markets be issued by CCI after stakeholder consultations.
3. The Draft Competition (Amendment) Bill, 2020 should be enacted at the earliest.
4. A framework to identify entities with significant market power should be formulated.
5. A framework for periodic interaction and information exchange among various regulators and Ministries that govern e-commerce in India should be enacted.
6. A Digital Market Division should be created within the CCI as an expert division tasked with regulation of digital markets with participation from all the existing regulators and Ministries governing e-commerce in India.
7. CCI, in consultation with all stakeholders, should formulate a mandatory code of conduct to be followed by operators of e-marketplaces with respect to business users and consumers. The code must be tailored to various business models. It must include ex-ante prohibition on certain practices such as, self-preferencing, discriminatory treatment among business users etc. It must mandate certain behaviour of platforms such as, data interoperability, data mobility, enabling multi-homing, transparency in usage of data etc.
8. Guidelines should be formulated in consultation with stakeholders, comprising due-diligence measures to be undertaken by e-pharmacy/e-health platforms, mandatory registration with the appropriate authority for sale of drugs, assigning responsibility for the sale of genuine drugs, regulating the sale of controlled drugs etc.
9. The Draft e-Pharmacy Rules should be finalised and implemented at the earliest.
Competition Issues in e-Commerce Marketplaces: There is a need for a policy govern e-commerce marketplaces.
1. Need for clear definitions of marketplace and inventory models of e-commerce:
  - A marketplace e-commerce entity should not sell any goods owned or controlled by it on such e-commerce marketplace platform. All the sellers on the platform should only be third party sellers.
  - An inventory-based e-commerce entity or e-commerce store or webstore should own the inventory of goods or services and sell it directly to the consumers on a principal-to-principal basis. The e-commerce entity should be the only seller on such e-commerce store platform and there should not be any third-party seller on such e-commerce store platform.
2. e-commerce marketplaces should not be allowed to have any direct or indirect relationship with sellers on the platform.
3. An e-commerce entity, operating under both marketplace and inventory model must be mandated to use separate branding for each of the platforms.
4. An e-commerce marketplace, its associated enterprises or related parties must be prohibited from directly or indirectly licensing its brand to third parties selling products on its platform.
5. Arbitrary classification of sellers and buyers and giving discounts/incentives on a discriminatory basis should be prohibited.
6. A policy to govern the use and sharing of data collected on platforms should be formulated.
7. e-Commerce platforms should publish on its website the parameters and weightage assigned to each parameter in determining the ranking of goods and sellers.
8. e-Commerce marketplaces must disclose the terms and conditions of the agreement required to become a seller on the platform including, platform fee, commission, discounts and relaxations, charges and levies applicable to sellers. Unilateral revision of terms and conditions to the detriment of any stakeholder must be prohibited.
9. All services in the supply chain, including, cartable menu, logistics, payment gateway, should be unbundled and sellers should not be coerced to accept the bundled services.
Information and Communication Technology Infrastructure:
1. Department of Telecommunications (DoT) should take steps for the expansion of internet connectivity to rural and remote areas and improve infrastructure to provide fast and stable internet.
2. The government should align its regulatory framework for the adoption of technological changes to enable the country to compete with others in the digital space.
3. The government should constitute an expert body for preparing a roadmap for expansion of data centres and server farms, and to formulate domestic standards of data infrastructure.
4. Research and innovation in the field of ArtificiaI Intelligence (AI), Internet of Things (IoT) etc., which feed on data, should be encouraged though enhanced investment in these areas.

Regulation of Data: There is absence of a regulatory framework around the use of data:
1. The Personal Data Protection Bill, 2019 (PDPB) should be enacted without further delay.
2. Guidelines for the use and sharing of data generated on e-commerce platforms should be formulated at the earliest.
3. A separate framework for the regulation of personal and non-personal data may be formulated.
Cybersecurity: There is a need for a national cybercrime policy. Accordingly, the comprehensive cybercrime policy should be formulated in consultation with stakeholders and taking into account the interests of small businesses.
Payment Systems and Financial Security:
1. Banking institutions and e-commerce platforms should create awareness among customers regarding sharing of sensitive financial data.
2. Periodical cyber security audits should be undertaken by e-commerce platforms, payment gateways, payment aggregators and financial institutions.
3. The government should strengthen the payment infrastructure to enable seamless financial transactions.
4. The National Payments Corporation of India (NPCI) and Ministry of Finance should undertake stakeholder consultation followed by appropriate action for review of Merchant Discount Rate (MDR) on Unified Payment Interface (UPI) transactions and structure of Payment Service Provider (PSP) fees.
5. The security measures applicable to banks should also be made mandatory to UPI-based PSPs to avoid financial frauds on payment platforms.
6. Payment platforms should be held accountable for financial frauds perpetuated on their platforms in case of non-compliance with mandatory security measures.
Intellectual Property Rights (IPR): The absence of adequate protection to IPR may hinder innovation.
1. Due-diligence measures must be imposed on sellers and platforms to ensure that the products sold on platforms do not infringe upon IPR.
2. Sellers of counterfeit products should be made to pay the loss suffered by genuine rights holder and must be barred from e-commerce.
3. The IPR Act should be strengthened, and detailed guidelines be issued to deal with IPR infringement in e-commerce.
Safe Harbour and Fallback Liability: Responsibility should be placed on e-commerce marketplaces with respect to maintenance of quality of goods sold on their platform. E-commerce marketplaces should participate in the resolution of issues related to delivery of sub-standard counterfeit products and services on their platforms and be required act as the intermediary between the customers and sellers. Codified guidelines that assign roles and responsibilities of the parties involved in e-commerce transactions should be formulated.
Goods and Services Tax (GST): Some issues in the GST regime relate to the differential treatment of offline and online sellers, the applicability of GST composition scheme and not allowing a virtual place of business and various compliances::
1. The exemption on GST registration should be extended to online sellers with same applicable threshold limit, on a declaration that their turnover is within the prescribed limit and that they will only sell Intra-State.
2. Onboarding of small sellers on online platforms should be allowed based on a three-way authentication of Aadhaar, Permanent Account Number (PAN) and bank details in place of mandatory GST registration.
3. The GST Composition scheme should be extended to online sellers subject to a turnover threshold of INR 1.5 crore.
4. Online sellers who utilise warehouses of e-commerce operators across states should be allowed to register such warehouses based on a single Principal Place of Business (PPoB) registration in the home State of the seller.
5. The feasibility of introducing seller-wise reporting by e-commerce operator based on Aadhaar/PAN should be deliberated upon.
Logistics and Allied Infrastructure:
1. That road and railway infrastructure projects in remote areas should be accelerated to provide seamless logistics movement.
2. Enabling policies on data and automation and standardising logistics procedures should be formulated for incentivising greater participation of the private sector to build quality digital infrastructure.
3. Innovation in disruptive technologies, such as, robotics, locational intelligence, machine learning and AI in logistics etc. should be encouraged through increased investment in research and development and tax incentives.
4. The Government should formulate guidelines regarding use of drone technology in e-commerce deliveries.
5. For the warehousing sector, there should be provision of single window clearance facility for timely approvals, relaxations in regulatory approvals, capital subsidies for construction of Grade-A warehouses in small towns, better credit facilities, tax rebate in procurement of cement and steel for warehouse construction, adoption of automated warehousing processes and necessary support through increased investment in automation technology.
6. For bridging the skills gap in logistics sector, skill development projects should be set up the in transportation, warehousing and cold chain sectors. The industry should provide training and certifications in collaboration with the government. Government should extend support via the Skill India Mission by allocating adequate budget for the logistics sector.
7. The State government should accelerate the implementation of States’ plans for the development of logistics and warehousing infrastructure.
e-Commerce Exports: E-commerce can play an important role in boosting India’s exports:
1. A dedicated chapter on promotion of e-commerce exports should be included in the upcoming Foreign Trade Policy.
2. E-Commerce exports should also be made a part of Free Trade Agreements (FTAs).
3. The DPIIT and Department of Commerce (DoC) should undertake a study on the feasibility of setting up E-commerce Export Zones in the top export clusters in India.
4. The DoC through Export Promotion Councils, Trade Promotion Organisation, and apex trade bodies should create awareness on the benefits of e-commerce exports to businesses.
5. E-Commerce exports promotion cells should be created at the district level to disseminate knowledge on destination market, collate demand data and conduct training on e-commerce exports procedures, brand building, digital marketing etc.
6. Dedicated customs clearance lanes, equipped with barcode system should be established for e-commerce exports at all international courier terminals.
7. End-to-end digitisation of the clearance process should be ensured for efficiency, repeatability and traceability of transactions.
8. The presence of Foreign Post Offices (FPOs) should be expanded across the country.
9. Central Board of Indirect Taxes and Customs (CBIC) should amend the Courier Imports and Exports (Electronic Declaration and Processing) Regulations, 2010 to allow re-import of gems and jewellery.
10. The CBIC should re-examine customs rules to remove the duplicity in compliance processes for e-commerce exports, streamline procedures and formulate a mechanism to differentiate between imported products and products which are being returned after exports.
Micro, Small and Medium Enterprises (MSMEs):
1. The Government should undertake techno-economic feasibility study of MSMEs to gauge gaps in the current policies meant for MSMEs and women entrepreneurs.
2. The Government should provide a special incentive scheme for digitisation targeted at e-commerce MSMEs and women entrepreneurs.
3. The Government should leverage the Digital India and Skill India programmes to design capacity building programmes in vernacular languages for e-commerce markets, such as, imaging and cataloguing, digital marketing, brand building, e-commerce onboarding, digital payments, etc.
4. State Governments should identify MSME clusters and initiate onboarding programmes, leverage the One District One Product Programme to promote targeted products and tap into the expertise of the industry to promote e-commerce.
5. The State Governments should collaborate with e-commerce platforms to facilitate the inclusion of more vernacular languages on their platforms.
6. A framework to leverage industry expertise through PPP model in imparting the required digital and marketing skills in e-commerce business should be included in the national e-commerce policy.
7. The government should introduce a policy (in line with the Corporate Social Responsibility policy) to mandate large e-commerce companies to provide training to small sellers and onboard them on their platforms.
Government e-Marketplace (GeM): The GeM portal plays an important role in enablement of MSMEs:
1. There is a need for creating more awareness about the benefits of GeM portal and provide training on onboarding and compliances to enable more MSMEs to be onboard.
2. MSMEs should be exempted from payment of 0.5% commission charged on the GeM portal.
3. There is a need to resolve the issue of non-availability of products in case of large procurements.
Open Network for Digital Commerce (ONDC): Notwithstanding thatONDC is a revolutionary initiative, it lacks clarity on certain aspects:
1. The DPIIT should formulate a strategy to onboard existing e-commerce platforms, ensure a level playing field between local/small business and e-commerce giants, and provide technical support to small/local business to design a tool compatible with ONDC to achieve its intended goal of democratising e-commerce.
2. The DPIIT should clarify the issue of liability on the network by assigning definite roles and responsibilities to all the participants, i.e., e-commerce platforms, buyers and sellers.
3. The DPIIT should clarify the applicability of the Consumer Protection (e-Commerce) Rules to ONDC.
National e-Commerce Policy: The DPIIT should finalise the draft National E-Commerce Policy at the earliest, keeping in view the dynamic nature of the online commerce ecosystem and all the above-mentioned recommendations of the Committee.

The full report can be found here. We are reviewing the implications of the recommendations made in this report and will accordingly engage with the government. Kindly write to garima@nasscom.in and dagarwal@nasscom.in to share your comments and suggestions.

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Garima Prakash

Manager, Public Policy and Government Affairs

Reach out to me for all things policy about e-commerce, international trade, export controls, start-ups and fintech