Compliance and control

New e-commerce rules expand govt role in the business

The proposed amendments to the Consumer Protection (e-commerce) Rules, 2020, reflect an accelerating trend towards intensified government intervention in India’s burgeoning e-commerce business. The latest proposals appear to be geared towards greater compliance and protecting the interests of a powerful domestic retailer lobby rather than those of consumers. To be sure, some of the rules are overdue, such as limiting the sharing of consumer data without consent, and specifying alternatives for consumers (which retailers already do). The requirement that e-commerce platforms register themselves with the Department of Industry and Internal Trade and appoint a chief compliance officer as a nodal point for law enforcement agencies may be a useful way for the government to keep track of these platforms.

But the larger problem is an old one: That the imprecise nature of some of the rules will open the door to subjective government intervention. For instance, flash sales — a hugely popular mechanism online — have been prohibited if they are back-to-back, limit customer choice, and prevent a level playing field. In the absence of a definition of such terms as “limiting customer choice” and “level playing field”, the decision on whether a sale violates these terms remains vulnerable to regulatory interpretation even as it serves no purpose for a consumer. These rules appear to be catering to traditional retailers, who have been increasingly unhappy with the huge success of deep discount festive-season flash sales on Amazon and Flipkart. Restrictions have also been extended to “related parties and associated enterprises” and under the new rules no related entity can sell goods to an online seller operating on the same platform.

This is clearly a response to complaints from conventional retailers that the Big Two foreign e-tailers create complex business structures to get around these rules. To be sure, media investigations suggest this to be the case: Internal documents from Amazon, for instance, showed that just 35 of the 400,000-odd sellers on its platform account for two-thirds of sales, suggesting that it extends preferential treatment to a handful of sellers. The Big Two are fighting court battles against an investigation by the Competition Commission of India into their business practices. It is unclear, however, how identifying goods based on “country of origin” will offer domestic manufacturers a better deal, unless it is assumed that consumers are driven by patriotism rather than value.

The larger question is whether these rules and restrictions on e-commerce make sense in an economy that the prime minister has repeatedly said should be open to market forces. More so when they have demonstrated their value during the pandemic-induced lockdown. Yet, successive governments, including the previous United Progressive Alliance, have focused on creating an un-level playing field for the e-commerce business in general and foreign e-tailers in particular. The latter, for unexplained reasons, are allowed to function as marketplaces and not sell directly to consumers, which has provoked the kind of imaginative rule-bending for which they are being investigated. It is worth noting also that e-tailers are subject to rules that do not apply to their domestic brick and mortar competitors. Most offline retailers have preferential agreements with a handful of sellers who offer them better terms — this is the basic nature of B2B competition — and most of them derive an increasing amount of revenues from their private label sales that get a preferential display on their shop shelves. The latest rules only deepen these anomalies.