Let technology enablers guide e-commerce regulation

Unbundled data could drive efficiency and we don’t need e-marketplaces treated apart from e-retailers

When the telephone was invented, people separated by vast distances were finally able to have a conversation with each other. All it required was for them to be on telephones at two ends of a length of copper wire and everything they said could travel from the speaker at one end to the receiver at the other. As more people got telephones, towns began to set up telephone exchanges, to which all phones in a locality could be connected so that operators could physically connect callers with those they wanted to speak to.

This was the era of circuit-switched telephony, so called because someone had to physically switch circuits at the exchange for calls to be connected. But circuit-switched telephony couldn’t scale up beyond a point. A circuit, once connected, can’t be used for anything else, which is why there was a limit to the number of simultaneous connections any exchange could support. If distant communication was going to spread far and wide, we needed a whole new paradigm.

Today’s telephone systems use packet-switched networks, the same technology that powers email communication. This technology breaks messages down into smaller packets, each with its own header that contains essential information about the message—where it is from, where it’s going and where it lies in the sequence of all the other packets that comprise the message. All these packets are dumped into the internet and allowed to bounce about from node to node in the general direction of their intended recipient. Every packet is free to take its own route, but no matter what path they all take, they will inevitably land up, more often than not, at their destination where the recipient’s computer reassembles them into a coherent message for the intended recipient.

Because technology breaks our messages down into little packets of data, today’s communication systems are able to use the full capacity of our data infrastructure. This makes it possible for text, voice and video messages to simultaneously flow through the same data pipes and still reach their intended recipients with reliable certainty.

In order to extract greater efficiency out of existing systems, we sometimes need to break the atomic units of those systems down into even smaller pieces, so that we can re-imagine how they might be put back together. This is the idea inherent in the concept of ‘unbundling’ that has so often featured in these pages and that India has successfully applied to the many digital public goods that it has rolled out.

When we think about retail transactions, we rarely break them down into their constituent parts. Every transaction is made up of at least two different stages: discovery (which is when we identify what we want to buy) and purchase (when we pay for everything we have chosen). E-commerce adds two more stages to this: ordering and delivery. However, since e-commerce platforms are focused on taking shoppers quickly and seamlessly through the process of discovery, ordering, purchase and delivery, we rarely ever think about e-commerce in this disaggregated way.

The government has always regulated the e-commerce sector strictly, at least partly in the fear that if we do not curtail investments in the sector, global retail giants could swoop in and destroy the livelihoods of millions of small traders in the country. Yet, despite these restrictions, foreign investments have flowed—to the point where India’s e-commerce market is currently the eighth largest in the world, with revenues upwards of $50 billion in 2020 and growing faster than any other market. Today over 300 million Indians actively consume e-commerce products. During the pandemic, digital alternatives have been a lifeline for businesses and consumers alike.

Today, India’s retail infrastructure is highly sophisticated. We have world-class payment and delivery systems that might have been built to cater to demand generated by India’s e-commerce titans, but which are currently being widely used outside of those contexts. Thanks to UPI, anyone can transfer money to anyone else using a mobile phone. Services like Dunzo and Swiggy Genie can deliver almost anything within a city, while courier services abound to seamlessly transfer products throughout the country. E-commerce in India is no longer just about the big platforms that dominate public perceptions of the sector, but also the various unbundled components that we have begun to utilize to extract greater efficiencies from our commercial infrastructure.

It is time to rethink our approach to e-commerce regulation and thus take better advantage of our current reality. Rather than protecting our small traders, we need to empower them to leverage the unbundled components of our e-commerce infrastructure to their advantage. Rather than restricting foreign investments, we need to make sure that the services that these investments yield are available to shopkeepers and small businessmen alike—through open, interoperable protocols that can be strung together into simple technology solutions that will enable hyperlocal commerce at scale.

If we can do this, there would be no need for restrictions on foreign direct investment (FDI) in the sector or to maintain an artificial distinction between the ‘marketplace’ and ‘inventory’ models of e-commerce. After all, the only reason why those categories were devised was in order to regularize the complex structures that had to be created to find a way around our FDI restrictions.