Industry Requires Enabling Regulations Not Restrictive Policy Regime: Experts

India's thriving ecommerce sector has become a driving force, enabling startups and micro, small and medium enterprises (MSMEs) to gain access to global markets. Despite contributing a mere 6.5 per cent to the USD 836 billion retail industry, ecommerce entities face disproportionate regulatory burdens compared to their traditional counterparts. 

While India's startup ecosystem continues to lead in innovation, driven by a progressive and supportive policy environment, it is facing a significant decline of nearly 77 per cent during the first seven months of 2023 compared to the previous year.

While speaking at an event by the Dialogue, a public policy think-tank, industry experts said that the Indian business industry requires enabling regulations and not restrictive policy regimes and consultations and sufficient implementation are key to robust policies. Experts also shed light on how the right regulatory changes could stimulate investment and innovation within India's growing startup sector

Shweta Rajpal Kohli, Chief Public Policy Officer, Peak XV Partners said, “The government and regulators are fostering a conducive business environment by ensuring progressive policy-making and allowing several opportunities for consultations with industry. There's a shift towards principle-based and data-driven policymaking, with an emphasis on fairness."

Kohli added that the focus of any policy should be on empowering the end consumer. Policies should remain impartial and should not provide an unfair advantage to any segment while being light-touch and not too prescriptive.

The experts emphasised the critical importance of fostering an environment that encourages, rather than hinders, the growth of startup funding. In today's digital age, legal and policy frameworks carry significant implications for startup investments, regardless of the specific business model or sector. For instance, regulations surrounding ecommerce, convergence and digital competition have the potential to influence investor sentiment within the Indian startup ecosystem. 

Prachi Bhuchar, Head, Government Relations and Public Policy, Meesho said, “While regulation serves a valuable purpose, we need a harmonization of policies. A potential complexity arises from the coexistence of safe harbour provisions under the IT Act for intermediaries such as us and the ambiguity in the upcoming e-commerce rules with the potential inclusion of fallback liability."

Bhuchar asserted that companies don’t want to absolve themselves of liability and are all for consumer protection but if due diligence has been done, seller KYC and have strong terms and conditions to keep fraud in check, then marketplaces should not have additional fallback liability to contend with. If e-commerce companies are forced to become more stringent then small sellers will be impacted and the entire ecosystem in turn, Bhuchar added. 

Lloyd Mathias, Angel Investor and Business Strategist said, “While the government is regulating larger players with multiple different legislations, there are sectors that are completely operating in the gray area which have an impact on large tracts of consumers."

Mathias added that it's crucial for the government to identify these sectors and minimize regulations, ensuring clarity for the startup ecosystem while keeping consumer interests at the forefront. Policies should aim to enable these sectors rather than stifling businesses.

Rahul Rai, Partner and Co-founder, Axiom5 Law Chambers commented, “Any new technology has a disruptive effect.  E-commerce, for instance, is reshaping the retail sector. However, unlike Silicon Valley, our country seeks to balance the interests of both the end consumers and smaller Indian companies."

Rai further stated that India has seen that any disruption that disproportionately affects either of the two, invites prompt government policy intervention, aiming to foster access and fairness for smaller players while continuing to protect consumer interests.

The experts also discussed the implications of certain emerging policy trends in the ecommerce space, notably the proposed e-commerce policy and anticipated amendments to ecommerce rules. These policy proposals may impose restrictions on private labels listing their products on marketplaces and even ban related party sellers. 

Further, these proposals may impose fallback liability on ecommerce stakeholders, resulting in significant disincentivisation for marketplaces and sellers. These measures are likely to lead to increased compliance burden and challenges for Indian startups and MSMEs in meaningfully utilising leveraging ecommerce channels, experts noted.

Abhinav Nayar, Chief Executive Officer (CEO), MOOL.AI said, “Regulations can have mixed effects and sometimes are at odds with the intent of the policy. So, a conservative approach that is sympathetic to the governance capabilities of early-stage startups, with streamlined rules and inter-policy compatibility, should be the standard practice.”

Meanwhile, Nandani Kedia, Founder, SoKo House, said that exports have become much simpler with leading ecommerce platforms, helping a first-time seller like SoKo House access global marketplaces. "Having a comprehensive policy for international returns and easing custom duty requirements would enable new sellers like us even further," added Kedia.