E-commerce regulation: New rules create an uneven field

22 July 2021

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Fierce lobbying by organisations representing small retailers and consumer interest triggered a set of regulations, introduced recently as proposed amendments to the extant Consumer Protection (E-Commerce) Rules, 2020.

The minister in charge commented that this was being done to “protect consumers” as a “lack of regulatory oversight has been observed.” With much trepidation, some e-commerce companies also welcomed these announcements, as did many others.
Grossly downplaying the benefits that large players bring to the table, namely economies of scale, superior logistics, and elimination of layers which reduce distribution costs, these regulations are likely to further stress an economy already under pressure.

Overcoming all odds, e-commerce was a success story, seamlessly supplying products and services, as small and medium scale businesses sold their products alongside large players during the pandemic. The newly proposed clauses seem more to do with platforms than consumers and are likely to encourage and prop up inefficient players in this space. Unwarranted micro-managing, supposedly to benefit consumers, will therefore have the opposite effect to what is avowedly intended.

To begin with, there is apparent regulatory overlap between the new and existing provisions, just as proposals to limit sales by sellers who fall under the definition of a ‘related party’ are severely impacting sales figures. It may well be that Starbucks will be unable to offer its products on Tata’s marketplace website because the company is partly owned by the Tata group.

The new rules seek to curb ‘flash sales’ as opposed to conventional sales, but how will the latter get determined and not be interpreted as the former is a matter of immediate concern. Restrictions on sales of this nature do not apply to brick-and-mortar retail stores and hence the intention of providing a ‘level playing field’ goes out of the window.

The clause on ‘fall-back liability’ puts the onus of sellers’ activities on e-commerce marketplaces, while other rules mandate that they remain a marketplace – that is, an online entity that just provides a platform to sellers, without doing any kind of selling, while not having any strong bond with them – is henceforth accountable for liability.

Once again conventional markets have no such obligation and will not be held liable, as this will not be considered negligent conduct by them. Companies engaged in e-commerce already have a grievance redressal mechanism and a robust customer care process in place that makes it easy for consumers to return products.

To remain compliant, companies must now appoint a compliance officer, nodal contact person, and resident grievance officer. Industry watchers suspect that the new rules will inadvertently encourage monopolistic tendencies and prevent the holistic growth of e-commerce in India.

An unprecedented requirement envisages that in addition to the place of origin, domestically sourced alternatives will have to be offered when imported goods are being sold online. No parallels are likely to be introduced for this highly subjective exercise in the conventional marketplace.

Requirements to prevent the cross-border flow of data by establishing localised data centres and servers are also warranted, though they should be of more concern to the Data Protection Bill. Another proposal entails that logistics service providers are closely watched, lest they provide preferential treatment to a seller.

All these proposals will give rise to further addendums, supplements, and amendments in the months to follow. They will keep regulators and companies deeply engaged, but not with the positive task of serving consumers or expanding the market, but for struggling through the maze of regulatory overload.

The new Central Consumer Protection Authority (CCPA) will have sweeping powers to book those found violating. Paucity of space prevents inclusion of several other features, some of which will certainly benefit the consumer. Compliance with this regulatory overload will most certainly increase operating costs for the sector and result in disrupting the entire demand-supply chain in e-commerce.

Some time back Morgan Stanley estimated that India’s e-commerce market could be worth $200 billion through the next decade. But this was well before the landscape got severely altered and regretfully the benefits to employment and tax revenue would now stand considerably depleted.

A columnist evoked Chekov’s counsel to aspiring writers, advising that “if in the first act you have hung a pistol on the wall, then in the following one it should be fired. Otherwise, don’t put it there.” Jousting between China and the US shows how quickly trade spats between countries can spiral, and how fast their economic impact is felt globally.

With the current announcement of e-commerce rules, in a sector experiencing high growth rates, major US players will be adversely impacted. This does not portend well in the bi-lateral trade policy context as India has drawn ‘first blood’. The situation no longer remains an exercise in sabre-rattling.

(The author is former Executive Director-American Chamber of Commerce in India.)