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Learning to Regulate
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India is perhaps one of the few major economies in the world, where economic policies are formulated by ‘Empowered Committees’ of politicians and bureaucrats. The Empowered Committee of State Finance Ministers is a case in point. This Committee has been closely involved in preparing the Goods and Services Tax (GST) framework along with the Central Government. There is little doubt that there are few subjects less political than those that impact the revenue collections of State Governments. Equally, there are few subjects less well understood by State Governments than the impacts of the proposed tax reform, despite a representative committee. This merits some introspection.
Does the country need to look towards a fresh set of policy formulation processes for regulating the economy? Given the emergent need for regulating new, technologically intensive sectors such as ecommerce, a case can be made for reimagining regulations in the days ahead.
Most bureaucrats are inherently defensive about the gaps in the government’s capacity to regulate the economy. When confronted with the inadequacy of extant policies, such as the absence of objective and transparent principles for auctioning natural resources, a common response is that policies should be critiqued keeping in mindthe temporal context within which they were formed. Indeed policies tend to respond to static questions rather than future scenarios – think bank nationalisation or Agricultural Produce Market Committees.
To hedge for the unknown future, there seems there is no policy making tool more useful than the thesaurus – Indian policymakers have seldom felt the need for definitional certainties. This is a challenge for the ecommerce sector, which is poised to cross US$ 6 billion in revenues (ex. Tourism and Ticketing) in by 2015. As yet, there is no government department which has taken on the onus of proposing comprehensive policies for the sector. Instead authorities are simply relying on synonyms for circumscribing ecommerce. This sector is hampered by the lack of a nodal authority such as the Civil Aviation Ministry for the airline industry, which by its very existence is purposed to regulate the sector.
At a stakeholder consultation meeting hosted by the Department of Consumer Affairs in September 2014, a proposition was placed on the table that “entirely new subjects of ecommerce and direct selling” should be brought under the purview of the Consumer Protection Act, 1986. The minutes of the meeting are publicly available, and indicate that ecommerce is not well understood. Similar discussions have been initiated by tax departments of various State Governments, currently mulling how best to extract revenues from the sector. Given that the sector occupies a large share of advertising, and has managed to appropriate precious media reporting space, tax departments are keenly observing developments in the sector.
The Department of Industrial Policy and Promotion has played an inadvertently critical role in the evolution of existing ecommerce business models, through a preventive FDI policy. Earlier this year, the Department of Consumer Affairs tried to suggest that nine nodal authorities take charge of regulating the sector. Where else in the world would such a fragmented regulatory framework be proposed? It is the equivalent of suggesting that the ubiquitous kirana stores, on account of having bank accounts, telephone lines and home delivery options, should be regulated by the Central Bank, the Department of Telecommunications and the Ministry of Home Affairs.
What is admittedly daunting about ecommerce is that it will force authorities to think deeply about some hardquestions. What really is consumer protection – can it be defined objectively? Does the consumer protection policy framework dilute competitiveness concerns of SMEs? Can consumption grow in an economy which does not create new jobs through innovation? Does the lack of clarity in existing regulations, aid discretion of enforcement officials? How can businesses be protected from regulatory harassment? Are the existing means to recourse available to them – primarily through the complex judicial system, viable? What principles of ease of business does the country have to strive towards – do these necessarily entail a slew of compliance procedures that penalise businesses that do not have the capacity for paying legal and tax teams?
It is unlikely that any Empowered Committee will be able to answer the above. Even if successful in doing so, a number of domain specific issues will remain unaddressed unless stakeholders are consulted continuously (and not just by soliciting comments on draft policies through online portals). A good example is a recent stakeholder consultation in Bangalore, hosted by the Retailers Association of India, in the run up to formulation of additional rules for packaged commodities. In this robust discussion between legal metrology officials andthe private sector, it was pointed out that certain Food Safety and Standards Authority of India’s regulations overlap with regulations under the Legal Metrology (packaged Commodities) Rules, 2011.
As a result, dealers of packaged food items, some of them ecommerce companies, are not sure which rules to follow, which flying squads of enforcement officials to pay obeisance to. Such concerns of regulatory overlaps and consequent confusion are not uncommon – and cannot be addressed by a single government department alone.A systemic recalibration of how this country regulates is required – across all departments. The departments not only need to talk to the private sector, they need to talk to each other!
In the absence of defining regulations for the ecommerce sector, the government must use the inherent technological capacities of ecommerce companies for mutual benefit. For instance, ecommerce companies acting as online marketplaces aggregating buyers and sellers – can easily give detailed reports on the sellers on their platforms to tax, metrology and other officials. Indeed ecommerce companies should themselves realise that ease of administration can be facilitated through inexpensive technological solutions. Given that existing regulations such as Value Added Tax Rules are not black and white with respect to ecommerce,businesses must hedge against hurdles by volunteering all relevant supply chain details, to various concerned authorities.
In an increasingly integrated global supply chain paradigm, technology should become a friend to regulators rather than remain a foe. It is incumbent upon the private sector, to use incremental technological innovations at justifiable marginal costs to enable this. And the government should play its part in embracing and harnessing the positives of technological change, rather than burying its head in the sand and pretending its the 20th century.
The suthor, Vivan Sharan, is Partner, Koan Advisory Group