Distorting the economy

The Centre’s reported move to bring the burgeoning e-commerce industry under the yoke of regulations of as many as nine different ministries is disquieting. At one level, there is nothing inherently new in this initiative spearheaded by the Consumer Affairs Ministry. After all, the Competition Commission is already empowered to look into issues of unfair trade practices or predatory pricing; the IT law covers issues relating to data security or online fraud; while the Reserve Bank of India is empowered to regulate payment systems, and so on, whether they relate to physical or virtual entities. So, in a sense recommending that e-commerce be brought under the regulatory ambit of these institutions is superfluous. But it is the unstated underlying perception — that e-commerce is somehow dodging regulatory oversight and is therefore in need of strict government policing — that is worrisome, coming as it does on the heels of demands for a complete ban on e-commerce by organisations ideologically linked to the ruling Bharatiya Janata Party.

This is not to say that there are no regulatory issues or laws that need to be tweaked to cover the unique nature of online retail. The spectacular growth of e-commerce in India — the sector is currently estimated to be growing at nearly 40 per cent per year and is expected to touch sales of $30 billion by 2020, from the current $12 billion — has left both brick-and-mortar rivals and regulatory authorities flat-footed. It has also rapidly evolved to meet the challenges of operating in India, with the result that players are, in many cases, almost impossible to classify by nature of business. While some are simply digital equivalents of traditional stores, the ‘managed marketplace’ or ‘managed inventory’ models blur lines between retail, media, and the warehousing and logistics businesses. Most disputes, whether relating to consumer complaints or tax demands, tend to flounder on the question of jurisdiction, since it is almost impossible to geographically locate a business that exists in cyberspace. Clearly, a comprehensive framework of rules and regulations addressing these issues is called for. The proposed Goods and Services Tax regime offers the opportunity to address most of the tax-related issues, while minor amendments to other laws should cover genuine issues relating to consumers and business operations.

But using regulatory muscle to try and clamp down on e-commerce, on the grounds of offering a ‘level playing field’ to traditional retail, is ill-advised. E-commerce players have used technology, innovation and risk capital to carve out an advantage for themselves in the market, while consumers are taking to it in growing numbers because it offers them convenience and better prices. This, in a free market, will inevitably lead to the growth of some players at the expense of others, whether online or offline. Attempts to prevent this using laws and regulations will merely distort the economy and, in the long run, prove as futile as attempts to save jobs by making it almost impossible for businesses to legally cease operations.

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