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Sansad TV: Committee Report- Promotion & Regulation of E-Commerce

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Introduction:

The e-commerce industry has evolved and attained a foothold in the Indian market and picked up a significant momentum during the past few years. The rapid proliferation of the digital economy has led to growth of e-commerce industry at a rapid pace which was further accelerated by compulsions on account of COVID-19. With attractive and convenient shopping options at the core of the consumer-facing business, the e-commerce industry also offers the power to create an innovative, sustainable, consistent and seamless shopping experience across all channels. The rise of e-commerce in India, however, has not been without problems.

Competition issues in e-commerce entities: Anti-competitive practices in the e-commerce marketplace include:

  • lack of platform neutrality, i.e., providing preferential treatment to selected sellers
  • deep discounting, i.e., discounts of preferred sellers are selectively funded by the platform
  • non-transparent search rankings
  • misuse of data.
  • The Committee recommended formulating a policy which clearly defines marketplace and inventory-based models of e-commerce.
  • It recommended that marketplace-commerce entities should:
  • not sell goods that it owns or controls
  • not have any direct or indirect relationship with sellers who sell on the platform,
  • be prohibited from licensing their brand to third party sellers on the platform.

Discounts and other aspect: 

  • The Committee also recommended prohibition of selective discounts and arbitrary classification of buyers and sellers on e-commerce platforms.
  • To improve transparency in data handling and search rankings, it recommended that the government should to formulate a clear policy regulating the collection of data on the platform, its use and sharing of such data with third parties.
  • In addition, e-commerce platforms should publish their criteria for determining rankings, and disclose terms and conditions required to become a seller on the platform such as platform fee, commissions, and levies.
  • Unilateral revision of these terms and conditions which can be detrimental to any stakeholder must be prohibited.

FDI Policy: 

  • The FDI Policy on E-Commerce allows FDI-backed e-commerce entities to operate only as a marketplace.
  • The Committee observed that the policy is limited in addressing anti-competitive practices in e-marketplace.
  • The Committee noted that there should be a framework to address these issues for both foreign and domestic funded marketplaces.
  • It recommended the inclusion of such a framework in the National E-Commerce Policy.

E-Commerce Rules: 

  • The amendments to the Consumer Protection (E-Commerce) Rules, 2020 place certain obligations on e-commerce entities such as appointment of chief compliance officer and nodal contact person along with setting up a grievance redressal mechanism on the entity’s website.
  • The Committee observed that the blanket imposition of these obligations, irrespective of the size of the entity, can be counter-productive and decelerate the growth of the sector.
  • It recommended that the proposed amendments should be applicable for only those entities that qualify a certain threshold.

Competition Act: 

  • The Competition Act, 2002 seeks to prevent practices that have an adverse impact on market competition.
  • The Committee observed that, under the Act, factors determining whether an agreement will adversely impact competition are outdated.
  • Similarly, the Committee also recommended making necessary amendments to the Act for determining the abuse of dominant position.
  • It highlighted that delay in undertaking necessary amendments to the regulatory framework may lead to irreversible effects on competition in digital market.

International aspect: 

  • The Committee noted that international practices recognise that digital companies of a certain size need targeted regulation.  They are designated as gatekeeper entities.
  • The Committee recommended that India should set a threshold for qualifying entities as gatekeepers.
  • It recommended amending the Act to add quantitative criteria such as active consumers and sellers on a platform, and volume of revenue generated to identify gatekeeper identities.

Extending tax exemptions:

  • Under the Goods and Services tax (GST), offline sellers with turnover less than Rs 40 lakh for goods and Rs 20 lakh for services are exempt from GST registration.
  • However, online sellers, irrespective of their size have to mandatorily register and pay tax.
  • The Committee recommended:
  • exempting online sellers from GST registration in line with offline sellers
  • allowing online sellers with annual turnover less than 1.5 crore to pay 1% of the turnover as flat tax
  • permitting online sellers to register a virtual place of business.

Open Network for Digital Commerce (ONDC): 

  • The Committee noted that ONDC, an initiative of the Department of Industry and Internal Trade (DPIIT), aims to promote an open network for all aspects of digital trade.
  • However, the Committee recommended that DPIIT should address issues such as maintaining a level playing field between small businesses and e-commerce giants and provide technical support to small and local businesses.