The tug-of-war between economics and data laws

The election josh might be high. But this must not stop us from focusing on issues that might matter to them in an age where our lives will be lived on smartphones and our data will be our intangible asset. Every marketplace and industry is regulated in order to ensure transparency and create a level-playing field. But when the rules are amended too frequently or made with an electoral vision, they tend to lose sight of the big picture.

In the Indian ecosystem, an entrepreneur needs to keep pace with highly frequent regulatory changes. But, when we are talking about a sector that rests with it the possibility of creating jobs – the e-commerce sector — the regulatory landscape must be planned with precision.

Just as our economy is recovering from demonetisation and the Goods and Services Tax issues, we can see the emergence of a proposed e-commerce law that will impact our foreign relations, if not its consumer demand. While the former two laid stress on industries, the emergence of an e-commerce law will have geopolitical implications too. The multiplier effect of this policy change can possibly impact New Delhi’s foreign relations with major players like USA, Japan, South Korea and China.

In a reply to a Parliamentary question, then minister of state for commerce and industry C R Chaudhary stated on July 30, 2018 that the Department of Commerce has initiated an exercise with regard to e-commerce regulation and that it aims to establish a think tank and task force under it. The key purpose of this new policy institution would be to ensure scrutiny on the electronic commerce that has been promoted by the deep penetration of digital economy across the country.

However, while the government moved forward to release the draft e-commerce policy mid-February, the implementation of the amendments in the FDI policy as depicted in Press Note 2 (review of FDI policy, 2018), has only ruffled the feathers of the corporates and the global big brother.

With India is largely moving towards a data-driven economy, it can be estimated that by 2025 the digital transactions from the country will be valued at $ 1 trillion. With data being considered the new oil, the move towards adhering to data localisation through the provision of the need for e-commerce players to setup domestic data storage centres is a step towards protecting national security. The draft e-commerce policy terming data as a sovereign source takes another step in the right direction. However, one must note the term “people’s consent” is missing from this equation.

Consequently, it is crucial to note Finance Ministry’s suggestion to remove data protection from e-commerce policy on the grounds that it will be addressed in the data protection bill needs to be looked at critically. By narrowing the definition of data or by allowing only the data protection bill to focus on data security, we would not be including fuel that allows e-commerce to be monetised.

In order to avoid misuse of any loopholes, implementation of the data protection policy should precede e-commerce policy. This will also ensure that both sets are given adequate attention to detail.

With the general elections over, it is prudent for citizens to understand that job creation is not a political phenomenon but primarily an economic one. And, the question is not about empowering a pakoda seller but about providing quality employment for the youth. One way to do this is through strategic industry collaborations and promotion.

But, frequent policy changes can only make it more taxing for e-commerce firms to operate in a growing economy like India, let alone create meaningful employment.

Though the draft e-commerce law intends to favour the economic growth story, its actual implications can largely cause pessimism in the market and fracture its growth. This is so as none of the large e-commerce giants is Indian. They have been funded by large inflows of foreign capital. By giving the minority shareholders (or Indian founders) the veto right, this policy will technically bypass the rules followed in the corporate world.

In addition to this, the task of creating jobs that was one of the purposes of the “Make In India” campaign, is perhaps effectively being implemented by the e-commerce industry’s last-mile delivery space.

The insurgent brands are helping the unemployment puzzle by slowing the growing economy that is fulfilling the aspirations of the youth. The momentum might be slow but this sector is poised for growth in the long-run.

Catch-22

Hence, we’re stuck in a policy Catch-22 situation wherein we need to make sure the e-commerce law and the data protection law reach equilibrium.

This being said, the two large players in market will continue to survive as they have the bandwidth and resources to afford cash burn for continuous market-share acquisition despite the cyclic policy changes. It is the traditional store with an omni-channel marketing strategy that will face the brunt of this policy change as for them customer acquisition will still be a key concern.

The government should be careful in replicating America First given that most of our unicorns are no longer Indian. In addition to this, it is prudent to understand that we need capital to overcome the jobless growth situation (in the formal sector of employment), most of which is flowing in from foreign investors.

This leaves us all with two key questions: Will the policy interventions for data protection and economic growth hamper each other’s visions? Will the e-commerce law provide consistency or remain subject to political volatility and lay precedence over the data?

(The writer is an investment banking professional)