Policy uncertainty in Indian e-commerce

Economic policy uncertainty

Shrinking investment in the Indian economy is a concern. Investments in new projects fell to a 15 year low in the last quarter according to the Centre for Monitoring the Indian Economy (CMIE) Capex data which tracks large investment projects.

Drivers of uncertainty in the E-commerce sector

In the recent Q2 earnings announcement, the Amazon CFO Brian Olsavsky mentioned uncertainty in India’s e-commerce policy. He expressed hope for `stable’ and `predictable’ policy, for the company to continue with its investments in technology and infrastructure in India. This explicit mention about policy uncertainty in India is a unusual moment, and requires attention by policy thinkers. What is the uncertainty associated with investing in India, as seen by Amazon?

  1. India’s draft e-commerce policy rules earlier this year preventing firms from influencing prices or selling products in which they hold stakes disrupted business plans for e-commerce companies. It bring companies back to the drawing board to ensure they can comply with the current regulations while limiting losses that rose from lack of clear direction from the start. The final e-commerce policy has been held back for another year, putting existing investments of firms in this sector at risk during the interim months, and deterring further investments.
  2. The uncertainty around data localisation is another deterrent. The recent announcement by a high-level government panel to do away data localisation for non-critical data, and the upcoming announcement of the position of the Prime Minister’s Office on data localisation are policy announcements that drive sentiments on this debate, though none are legal instruments. Under data localisation requirements, companies would need to redesign internal algorithms to access data locally, pay up for new servers, and face costs to protect data in less-secure environments. The predictive power of firms’ algorithms would weaken with fewer data points to train models on. The due process of discussions with various government bodies and stakeholders on this issue is still in process. The RBI’s requirement for financial data localisation despite existing provisions (Bailey and Parsheera, 2018) for access under the Payments and Settlements Act (2007) suggest that any Indian regulator can step in with special requirements at unforeseen times.
  3. A related issue is the disclosure requirement of source code under the draft e-commerce policy. E-commerce firms depend on data-driven marketing and use of collaborative filtering for customer recommendations. A code submission requirement is a coercive technique aimed at achieving `the transfer of technology and local needs’ described under the proposed e-commerce policy. Technology transfers cannot and should not be coerced: they happen in an organic and legitimate manner through managers and employees developing skills and passing them onward in data communities or by workers moving across companies (Bloom et al, 2019). It is also doubtful how technological transfers can be achieved with segments of code without underlying data. Will code disclosure requirement be combined with data localisation to pass on core business value to competitors? Will companies need to invest in staff and technologies to find workarounds to be able to mask their key assets? Whether such a code disclosure requirement will come into effect remains unresolved. In mid-2020 the final e-commerce policy will describe the stand of the government on this issue, but this is not definitive either.

Conclusion

For India to have a stable investment environment, we need to provide firms a stable and predictable policy environment. Investments from firms in various sectors will boost the investment cycle for India. Resolving policy uncertainty both at the macroeconomic level as well as in different sectors, and reducing regulatory risk through better rule of law is critical for India in the current investment scenario as well as for long term growth.

References

Aggarwal, Nidhi and Zaveri, Bhargavi.Problems with evidentiary standards for proving securities fraud in India, The Leap Blog, 23 August 2019.

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Esya Blog

Esya Blog

The Esya Centre is a technology policy think tank based in New Delhi, India