Lazy Legislation

While Press Note 3 of 2016, was supposed to liberalise FDI in e-commerce in India, it is filled with contradictory provisions and unclear definitions - particularly regarding the inclusion of service and digital product sales in e-commerce. It is, in fact, a step back and is reflective of the fact that the government’s understanding of technology and its impact is inadequate. Effective regulation in the Network Age requires precise, flexible legislation, understanding network patterns, and a non-linear approach to policy formulation.

This article was first published in The Mint. You can read the original at this link.

In the two decades I have spent analysing Indian technology law, I would be hard-pressed to point to a piece of regulation that succeeds in falling over itself more times than Press Note 3 of 2016. It was supposed to be the regulation that freed up foreign direct investment (FDI) in e-commerce and slapped the seal of approval on the marketplace model.

I remember thinking at the time that finally, the industry could step out from behind the complicated business models they had been forced to put in place. But as I read those three short pages and tried to make sense of the contradictory provisions and poorly worded definitions, it was unmistakably clear that, as much as the government may have taken one step forward, it had taken two steps back.

Let’s take a closer look at the definition of “e-commerce". For reasons I cannot fully comprehend, Press Note 3 defined e-commerce to include the sale of services and digital products over the Internet. Now, we all know that India’s technology industry has been built on the sale of services. To say that businesses that sell services over the Internet are now subject to FDI restrictions is like killing the goose that’s been laying golden eggs. Similarly, digital goods have always been considered to be outside the purview of retail trading.

This is the basis on which various business models—including mobile apps and music stores and digital movie businesses—have been built. For these businesses to have to explain to their foreign shareholders that their investments are now illegal is embarrassingly awkward. This is the sort of lazy regulation that unnerves investors and shakes their confidence.

Had this been an isolated instance, I may not have taken the trouble to write this article. But if there is one thing that my years as a lawyer have taught me, it is that when it comes to legislating on technology, the government is almost always out of its depth.

Consider, if you will, the 2008 amendments to the Information Technology Act that introduced into the statute Sections 66A, 69A and 79. In their misguided zeal to assert control over the wild spaces of the Internet, the government drafted these amendments with language so broad that they were literally an invitation for abuse.

Eventually, after many instances of highly criticized executive over-reach, the Supreme Court delivered a seminal judgement on freedom of speech and expression over the Internet in Shreya Singhal vs Union of India, in which it struck down Section 66A and drastically emasculated Sections 69A and 79.

Why does this happen? How does one explain the almost casual indifference to nuance and detail—the lack of appreciation for the impact that a carelessly used phrase can have?

Joshua Cooper Ramo, in his book The Seventh Sense, suggests that we have just entered what he calls the “Network Age"—a phase in the evolution of humanity that is just as significant to our civilization as the agricultural revolution was at its time. What distinguishes this age from those that preceded it is that, for the first time in history, human beings are connected to each other by networks across vast geographies and in unprecedented ways.

These networks exert extraordinary influence over everything we do. They have placed knowledge at our fingertips and a variety of tools at our disposal, in the process changing the way we consume news, interact with each other and build our businesses.

We are still in the process of transition, but the shift has caught our leaders off-guard. Governments around the world are struggling to comprehend the changes that this networked world have wrought to the “old ways" of doing things. For the most part, regulators still think in disconnected terms, addressing issues at the surface without attempting to understand the role that underlying networks play in producing those consequences or the impact that their regulations might have on connected things.

This is why the financial crisis of 2008 refused to respond to financial stimulus and why the Indian government repeatedly found itself unable to defuse leaderless protests such as those that erupted after the 2012 Delhi gang-rape. Ultimately, this is why the government enacts laws like Section 66A and issues Press Note 3.

When Napoleon conquered Europe, his enemies marvelled at his seemingly unique ability to sense the invisible patterns in the battlefield. They called it coup d’oeil—the glance that takes a comprehensive view. Legislation in the Network Age requires a similar sort of vision. It demands an understanding of the patterns in our networks and requires a non-linear approach to policy formulation.

If we are to effectively regulate the Network Age, our governments need clarity of purpose, reflected in precise legislations that are flexible and responsive to change.

Anything less will result in chaos.