DAIKIN

Disconnects In India’s E-commerce Policy

India’s National E-commerce Policy is in search of itself. The policy is designed to reincarnate India into the top class of the commercial universe in which goods, including digital products, and services are bought, sold, marketed, and distributed through an electronic network, and in which delivery and payment may be online. Yet, the policy is anything but a cogent, coherent vision to facilitate Internet-based transactions in India or escalate India’s international comparative advantage as an electronic marketplace and data storage and processing center.

  • The policy contains six ‘Parts’:
  • Data
  • Infrastructure Development
  • E-Commerce Marketplaces
  • Regulatory Issues
  • Stimulating the Domestic Digital Economy
  • Export Promotion through E-Commerce

The topical coverage is fine.  What’s not fine is the failure of the policy to connect topical details with big-picture issues.

The government issued the policy in draft form on Feb. 23. After contemplating these eight questions, the government should rewrite the policy, hopefully in far better English.

First, does equality matter?

That a level playing field for Indian and foreign e-commerce participants is not what the government envisions is clear from statements in the policy, such as the call “to promote electronic commerce in India among vendors, consumers, intermediaries, etc. and integrating existing Indian logistic service providers operating in the physical world with the digital economy.”

Likewise: National data of various forms is a national resource that should be equitably accessed by all Indians. The same way that non-Indians do not have access to the national resources on the same footing as Indians, non-Indians do not have equal rights to access Indian data.

Here the disconnect is in the policy goal of promoting India as a hub for e-commerce. That can’t happen without foreign trade and investment.

And, no international lawyer can read such statements without spotting a possible violation of the national treatment rules in GATT Article III of the General Agreement on Tariffs and Trade and Article 2 of the World Trade Organization Agreement on Trade-Related Investment Measures. Likewise, legal minds would be concerned about the policy calling for the government to “promote and facilitate exports through e-Commerce by … incentivizing exports.”

Second, is India in America’s cross-hairs?

There seems to be a perceptible disconnect between India’s proposed e-commerce policy and America’s ongoing Section 301 trade war with China.

The anti-fraud, anti-counterfeiting, anti-piracy provisions and transparency provisions of the e-commerce marketplace are generally unobjectionable. But, the policy prohibits “an e-commerce platform, in which foreign investment has been made from exercising ownership or control over the inventory sold on its platform”. That bars Amazon and Flipkart from selling merchandise if they have an ownership interest in its producer. The rationale is to protect India’s offline retailers of multi-branded goods and impede vertical integration. Despite America’s objections, India failed to consider an alternative approach, namely, stringent enforcement of antitrust laws.

If India persists, then it risks a Section 301 action, the trade remedy that launched the U.S.-China trade war.

Practices of which the U.S. accuses China are ones India embraces in its policy: data localisation, restrictions on overseas data transfers, and discrimination against foreign cloud computing providers. If America took on China, then a fortiori it will take on India.

Third, do emerging free trade agreements matter?

The policy is disconnected from what the 11 Parties to the Comprehensive and Progressive Agreement for a Trans-Pacific Partnership, and the three Parties to the United States Mexico Canada Agreement, have agreed in Chapters 14 and 19, respectively.

Worse yet, the policy demands data localisation, “not only [to] give a fillip to computing in India but … also lead to local job creation.” The government thinks if it can’t restrict exports of data, then Indian companies will be starved of the information they need to expand and employ Indians.

That’s the same argument for export licenses and taxes from India’s pre-1991 reform period: Indian inputs must be protected from being sold to the highest bidder overseas, so Indian businesses get cheap local inputs, produce finished goods, and build vertically integrated industries. It’s a loser, because Indian firms are mollycoddled by export restrictions from international market price signals, not exposed to the fillip of foreign competition, and tempted to bribe politicians to prolong the self-serving barriers to trade.

In brief, the policy is protectionist, a fact evident not only from its demand “to protect data generated in India”, but more prominently from its sub-title, “India’s Data for India’s Development.”

What is not evident, however, is who the policy is protectionist against. Is it just America? Or, is China also feared by the government? Or both?

Thinking back to the first question, there is even the possibility the Americans and Chinese settle their trade war in a manner that puts India in both of their cross-hairs, because the Chinese satisfy the above-referenced concerns, whereas India blithely turns the other way.

Fourth, is the policy ethnocentric?

Probably, by inference from its disconnect with the realities of trust. The policy declares:

“An individual who has access to maximum information about the market, is in a position to dominate it. India having one of the largest populations in the world, being a large, young, consumer-oriented society is emerging as a virtual treasure trove of information. India is likely to become one of the largest sources of such commercially useful data in the world.”

So, the policy calls for entrusting Indian data to Indian companies and the Indian government.

Why are those data-keepers more trustworthy than American companies and the United States government? Perhaps it’s best to entrust New Zealand companies and their government with data on individual Indians.

Likewise, the policy presumes Indian companies are better at sharing benefits from e-commerce than foreign multinational corporations:

“While one may see these [multinational] companies prosper, but more often than not, it is the shareholders of these huge online companies who rake in the money. The returns to the society which hosts these companies are somewhat limited.”

Truth be told, a large Indian company, though possibly more easily subject to Indian government jurisdiction, is no more socially just than a foreign MNC.

Fifth, do the poor matter?

The policy admits “the world population of persons above 14 years is 5.5 billion,” of which “2.5 billion have smart-phones”. Having spotted 36 percent of people globally lack a smartphone, the policy draws no inference about them,nor about the mere “5 percent of consumers in developing countries” who “access goods and services on e-commerce platforms” – let alone about the Indians among them. The policy admits “two of three people in India, do not have access to the kind of connectivity needed for digital trade and e-commerce,” and “only about 15 percent of rural households” are “digitally literate” (i.e., “at least one person in the household who can use a computer, tablet or smartphone”.

The policy fails to connect these data, and the fact India is home to the world’s second largest number of absolutely poor people (after Nigeria, those living on less than $1.90 per day), with the strategy of using e-commerce to empower the poor.  They can take online courses, from English and mathematics to law and economics, thus enhancing their human capital. They can participate in online banking transactions, depositing and transferring funds, and making and receiving payments, thus building their financial capital.

But, the policy bogs down in the mysteries of online customs clearance and congestion at air cargo complexes in Mumbai, offering no targeted subsidies for online educational tuition payments, help with inclusive banking, or support to build a small business.

That’s the development India’s poor need to take advantage of e-commerce: reliable, 24/7 electricity, high-speed internet, clean, decent accommodations, and well-funded primary and secondary schools with well-trained, well-paid teachers. Instead, this single page makes two minor, non-committal points.First, “steps will be taken to develop capacity for data storage in India” (e.g., “data centers, server farms, towers and tower stations, equipment, optical wires, signal transceivers, antennae,” and “power supply” and “connectivity”), but that “creation of infrastructure for storage would take some time.” Second, “domestic alternatives to foreign-based clouds and email facilities will be promoted” and maybe that promotion “could include budgetary support.”

Similar deficiencies afflict the policy in respect of e-commerce taxation: the government is more interested in taxing the internet than building an efficient, non-corrupt, infrastructure for income tax withholding.

Sixth, are data a factor of production?

Helpfully, the policy defines ‘data’ as “any type of information converted into a binary digital form that is efficient to store, process and transfer across different devices, platforms, servers and borders,” which typically is stored in a “data cloud,” that is, “a network of computers, information technology and software applications.” Rightly, it declares information is a key driver of economic growth, saying data is “a valuable resource for any individual, corporation or a Government,” with “a real and measurable value,” because it “can be processed to aid decision-making.” But, there is a disconnect between these points and standard economic theory.

Contrary to the policy position, data is not on par with the traditional economic factors of production. Those are labour, land, physical capital (i.e., machine tools), human capital (i.e., knowledge), and technology (e.g., computers). These factors are fixed in the short term, but in the long run may increase in quantity and quality so as to expand the production possibilities frontier of a country.

Oil is a natural resource categorised as land among the traditional factors. The use of those factors presents trade-offs: an employee and her work time and brain power can be allocated to one task or another. By contrast, information does not typically generate zero-sum games: multiple workers can use the same data set simultaneously without prejudice to the others, and without depleting the data.

Seventh, does data privacy matter?

The policy is disconnected from its stated commitment to individual privacy. The policy declares “an individual owns the right to his data,” so the use of such data must be with the individual’s “express consent.” If data is anonymised or aggregated, then it becomes “the collective property of the group.”

Neither an individual nor group should be expected to pay a company for access to the data, no government should have to pay a company for access to data about its citizens, (the policy says).

That all sounds reasonable, but the next step is a Socialist-style non sequitur: The data of a country, therefore, is best thought of as a collective resource, a national asset, that the government holds in trust, but rights to which can be permitted… The analogy of a mine of natural resource or spectrum works here.

India and its citizens have a sovereign right to their data. This right cannot be extended to non-Indians (the same way that non-Indians do not have any prima facie right or claim to, say, an Indian coal mine). This understanding flows from the acknowledgement that data about an Indian, is his/her own.

The first option is decentralised and bottom-up. The second option is centralised and top-down. The policy steers to the second option when it declares “data can, therefore, best be likened to a societal ‘commons,’” and reminds Indian states that Schedule VII of the Constitution allocates inter-state commerce to the centre.

Or does it?

Confusingly, the policy implies a third option – Indian corporations own data, as a junior partner with the government. The policy proposes to restrict cross-border data flow by any business that collects or processes sensitive data in India and stores it abroad, forbidding that business from making the data available to any business outside India, or to a third party, even with the consent of the customer, that is, of the individual about whom the data concerns.

Indeed, if data is a factor of production that corporations use for profitable growth, then privacy protections interfere with that use and with building data sets from little people. Proceeding on this line, the policy bias is against privacy protections and for “creating economic benefits from data, that is, monetisation of data.”

Data analysis, processing, and utilisation “is an important business model adopted by many corporations to generate profits.” Big business needs to crunch big data and deploy artificial intelligence, to tailor online advertisements, gauge consumer preferences, identify patterns and trends, recognise images and faces, affix physical locations, generate financial details, develop financial profiles,and assess creditworthiness. “Companies with maximum access to data about consumers stand to make windfall profits from leveraging this through targeted advertising and product development,” and they can “not only generate new streams of revenue but [also sell data services] to other firms for use in their businesses.”

Eighth, does human dignity matter?

The policy is disconnected from emerging legal trends. One trend, in human rights law, is that data privacy ought to be considered a human right, an extension of the right to privacy in Article 12 of the 1948 United Nations Declaration on Human Rights to which India is a signatory. Another such trend is in Indian Constitutional Law. In August 2017, in Puttaswamy v. Union of India, the Supreme Court declared that under Article 21 of the Constitution:“The right of privacy is a fundamental right. It is a right which protects the inner sphere of the individual from interference from both State, and non-State actors and allows the individuals to make autonomous life choices.” – Supreme Court judgment in Right to Privacy case.

They are all too eager to collect, control, and apply data on matters from family size and sociability to air quality and GDP growth, with no pretence of a right to privacy.

The vision of an outcast?

The policy ‘Vision Statement’ reads:

“This National E-commerce Policy has been formulated with a vision to provide a level-playing field to all stakeholders, including the individual consumers and MSMEs and start-ups. However, the Government has the responsibility to pursue a development agenda, while preventing market failures and distortions.”

Alas, the playing field is not level for poor or rich Indians, nor for foreigners. There is no development agenda. The government is not preventative, but protectionist.

Raj Bhala is the inaugural Brenneisen Distinguished Professor, The University of Kansas, School of Law, and Senior Advisor to Dentons U.S. LLP. The views expressed here are his and do not necessarily represent the views of the State of Kansas or University, or Dentons or any of its clients, and do not constitute legal advice.―Bloomberg Quint

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