Explainer: Why industry, ministries are clashing over new e-commerce rules

Regulation of e-commerce

buying online: new draft e-com rules
The new draft e-com rules aims to offer consumers better protection and a level playing field for sellers. Pic: Pixabay/CC0

The new set of Consumer Protection (E-Commerce) Amendment Rules, 2021 released by the Ministry of Consumer Affairs, Food and Public Distribution has raised a storm of protest from other ministries, e-commerce platforms and IT industry trade body Nasscom.

Given the huge spurt in e-commerce transactions since the pandemic, especially in the supply of essential goods and services, the new rules aim to protect the interests of consumers using the various e-commerce platforms. India registered a growth in e-com transactions of 36% in 2020, amounting to approximately 80 billion dollars and still counting.

The main issue is that e-commerce does not have any uniform definition. Buying or selling goods through the Internet is generally considered as e-commerce or internet commerce, even though the final delivery of the goods or services is largely offline. The Organization for Economic Co-operation and Development (OECD) has defined e-commerce as the “sale or purchase of goods or services conducted over computer networks by methods specifically designed to receive or place orders.”

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Given the overall ambiguity, the new rules have been framed to give the consumer better protection against fraud, non-delivery of goods and services, and high costs.

Main changes incorporated in the new draft rules

  • Ban on flash sales: These are special sales organised by an e-commerce entity wherein selected goods or services are sold at reduced prices and high discounts for a predetermined time.

The amended rules ban such sales, especially when organized by intercepting the ordinary course of business, using technological means with an intent to enable only a specified seller or group of sellers managed by such entity to sell goods or services on its platform.

Through a press release, the government clarified that conventional flash sales by third party sellers are not banned on e-commerce platforms. Only flash sales which limit consumer choice by indulging in special deals with specific sellers are banned.

The sale mentioned here are those wherein a specific brand sells its product on a particular e-commerce site at a price lower than its market value. Such sales are only for a fixed time period of a few days.

  • Fall back liability: According to this, the e-com platform will be liable when the delivery of goods or services fails, causing loss to the consumer. Earlier, in case of such failures, the e-com platforms used to direct the buyer to the vendor who had originally put the product on the e-com site.
  • Consumer data: The e-com entity cannot share consumer data without express and affirmative consent by the consumer. Rules also require the entity to eliminate pre-ticked checkboxes, which were curated to secure the consent of users automatically. If the data collected is used in any manner, such practice may amount to unfair trade practices and impinge on the interests of consumers.
  • Related parties and associated enterprises: To maximize sales, e-commerce entities usually launch their own brands or products on their site which compete with other vendors. The new rules state that parties and associated enterprises related to a particular e-commerce company will not be allowed to be enlisted as seller on that platform. Any entity having 10% or more common ultimate beneficial ownership will be considered an “associated enterprise” of an e-commerce platform.

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  •  Mandatory registration with the Department for Promotion of Industry and Internal Trade (DPIIT): Every e-commerce entity which intends to operate in India shall register itself with the DPIIT. It shall ensure that such registration number and invoice of everyday orders is displayed prominently on its platforms in a clear and accessible manner.
  • Compliance measures: Platforms must appoint a Chief Compliance Officer, Nodal Contact Person and Resident Grievance Officer. The person appointed should be a citizen of India and a resident in the country. The entity will be required to publish the name, contact details and mechanism to lodge a complaint on their websites and mobile applications. The platforms must also acknowledge the receipt of such complaints within 48 hours and provide redress within one month.
delivery boys do not figure in new draft ecom rules
There is no uniform definition of e-commerce, especially as the final delivery of goods and services is offline through such delivery boys.
Pic Sabah Virani

Critics speak

These amendments raised eyebrows not only among the e-commerce entities but among different government ministries as well. The corporate affairs ministry has called the Rules “superfluous and unnecessary”, especially the proposed clause that states e-commerce firms should not abuse their dominant position in India.

The new draft rules discuss malpractices and related areas, creating a mini-competition law regime, the subject area of which is handled by antitrust laws, say other concerned ministries.

According to the finance ministry, these rules might lower job creation, affect tax revenue, and discourage upcoming and small entities, hampering ease of doing business. It further stated that a proposal which makes online shopping websites liable for sellers’ mistakes would be a ‘huge dampener’ and could force companies ‘ to revisit their basic business models.

Niti Aayog stated that these Rules send the message of unpredictability and inconsistency in policy-making. The Corporate Affairs ministry added that the proposed rules do not have any economic rationale as these are normal trade practices.

E-com platforms, on the other hand, complain that the term flash sale is not defined clearly and explicitly from a consumers’ standpoint. Media statements put out by the platforms also argue that the new rules do not ban all sales promoted by sellers to create demand.

Banning such sales will not benefit customers as they wait to purchase certain goods and services when they are sold at discounted prices especially during festive seasons, the platforms said.

The platforms also questioned why only regulate e-commerce and not offline retailers, who also organise similar sales. The rules will increase the compliance burden of platforms, they add.

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Also the non-listing of related parties and associated entities might affect the e-commerce entity to which they belong. For instance, in India, Starbucks operates through Tata Group. If this provision is applied, then Tata Group won’t be able to promote Starbucks on its upcoming app. Similarly, Amazon holds stakes in sellers such as Cloudtail and Appario and application of the provision means Amazon cannot promote these in its app.

Further, e-commerce is regulated by the Department for Promotion of Industry and Internal Trade (DPIIT), but the amended rules were formulated by the Ministry of Consumer Affairs. This anamoly is yet to be clarified by the government.

These Rules are presently open for public comments and industry feedback and will be notified again with the required changes based on feedback when presented in Parliament. Meetings with all concerned stakeholders on this are ongoing.

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About Utkarsha Srivastava 10 Articles
Utkarsha Srivastava is an advocate by profession, based in Delhi.