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India’s new draft eCommerce rules and its impact on retailers

India’s new draft eCommerce rules and its impact on retailers

Relevance:

  • GS 3 || Economy || Services || Ecommerce

Why in the news?

The government has suggested modifications to the Consumer Protection Act’s e-commerce laws in order to make the framework in which businesses operate stricter.

Present Context:

  • The Ministry of Commerce and Industry has already issued a set of guidelines to control e-commerce businesses. The Consumer Affairs ministry has now published new guidelines to deal with ‘unfair’ trade practices that harm customers.
  • Several suggestions in the draft e-commerce laws aim to increase online businesses’ responsibilities.
  • The Confederation of Indian Industry (CII) and the Federation of Indian Chambers of Commerce and Industry (FICCI) are scheduled to have talks with e-commerce companies and other stakeholders to explore e-commerce regulation changes.

All about the Draft E-commerce rules:

  • E-commerce entity registration is required: Any online shop must first register with the Department of Promotion for Industry and Internal Trade (DPIIT).
  • The appointment of a chief compliance officer.
  • A point of contact for law enforcement agencies 24 hours a day, 7 days a week.
  • Requiring e-commerce firms that sell imported products or services to “incorporate a filter system to identify items based on nation of origin” and “suggest alternatives to guarantee that domestic goods have a fair chance.”
  • Specific flash deals or back-to-back sales are not permitted since they “restrict customer choice, raise prices, and impede a level playing field.” The government will not ask e-commerce businesses to reveal any further flash deals.
  • Any e-commerce entity that receives a request from an authorized government agency for information on a law violation, including cyber security problems, must respond within 72 hours.
  • Developed the idea of “fall-back liability,” which holds e-commerce companies responsible if a seller on their platform fails to provide goods or services due to negligent behavior, resulting in a consumer loss.

Why the draft e-commerce rules is needed?

  • Anti-competitive trade practices: Amazon and Flipkart, the two largest e-commerce firms, have been accused of skewing their pricing methods to favor certain merchants on their platforms and that their discounting tactics have harmed offline businesses. In addition, India’s Competition Commission intends to launch antitrust investigations against corporate activities (Amazon and Flipkart).
  • According to media investigations, this is the case: Internal Amazon records revealed that only 35 of the 400,000-plus vendors on its site account for two-thirds of sales, implying that it gives preferential treatment to a select few.
  • E-commerce platforms serve as both participants and regulators, since they both create a marketplace and compete with other merchants that use it. A conflict of interest arises as a result of this.

Advantages of the draft e-commerce rules

  • Everyone is protected:
    • The regulations prohibit e-commerce firms from “manipulating search results or search indexes.” Sellers and dealers have long demanded that particular platforms not be given preferential treatment.
    • Furthermore, the regulations provide that the logistics service provider must not treat vendors in the same category differently. The regulations also safeguard against deceptive advertising and unfair business practices.
  • Encourage the use of made-in-India products: E-commerce businesses will be required to offer local alternatives to imported items. Made-in-India products will benefit as a result of this.
  • Increase accountability: The proposed modifications would increase accountability from e-commerce businesses’ stakeholders. E-commerce businesses need to explain how they rank items in a way that consumers can comprehend, as well as promote transparency.
  • Eliminate fly-by-night operations: By requiring e-tailers to register with DPIIT, fraudulent e-commerce operators may be eliminated.

Challenges associated with draft e-commerce rules:

  • Greater supervision of all online platforms: The draft e-commerce changes follow on the heels of the new IT (Intermediary Guidelines and Digital Media Ethics Code) Rules, demonstrating the government’s growing desire to exert greater oversight over all online platforms.
  • They are unable to offer their own retail products: “None of an e-commerce entity’s related parties and affiliated companies is enrolled as a vendor for sale to customers directly,” according to the new guidelines. This has an impact on a number of sites that sell items from merchants with no links to them. Any business with a shared ultimate beneficial ownership of 10% or more shall be designated an e-commerce platform’s “related enterprise.”
  • There is an overabundance of legal problems: Many of these rules will almost certainly result in lengthy court battles. The judiciary will be overburdened as a result of this.
  • The guidelines will make it easier for the government to intervene in people’s lives on a whim. Flash sales, for example, are forbidden if they are held consecutively and limit customer choice. The determination of whether a sale is in violation of these terms is still subject to regulation.
  • Impact on job creation and growth: The new e-commerce laws result in overregulation, as well as the possibility of interpretive uncertainty in the rules. This would stifle development and job creation in the e-commerce sector, which has been on the rise.
  • Why Discourage MSMEs: E-commerce has given MSMEs a larger market to sell their products to. The tightening of marketplace restrictions would deter these MSMEs from going online.
  • Take away strategic autonomy: The proposed draft regulations resemble a handbook for micro-managing e-commerce firms, similar to the pre-1991 Licence Raj. Furthermore, if all e-commerce websites are required to function as generic market platforms, these businesses may lose their capacity to beat competitors and fulfill the market’s ultimate goal.
  • These regulations appear to be aimed at established retailers, who have grown more dissatisfied with the tremendous success of Amazon and Flipkart’s deep discount festive-season flash sales.
  • In contrast to the Commerce and Industry Ministry’s guidelines: The new draft rules state that no linked parties or associated businesses shall be registered as marketplace vendors. The Commerce Ministry’s guidelines, on the other hand, compelled businesses like Amazon to reduce their shareholding in so-called favored sellers to 24 percent. This was done to provide sellers a fairer playing field.
  • Other concerns: It’s unclear how identifying goods by “country of origin” can benefit local producers unless it’s assumed that buyers are motivated by patriotism rather than value. This draft, unlike the last set of guidelines released by the trade ministry, makes no distinction between international and local e-commerce.

Conclusion:

The government must eliminate uncertainties caused by several ministries overseeing the e-commerce sector. As a result, the government should establish a single nodal body and simplify the laws for online markets. E-commerce businesses will continue to develop additional entities and build intricate supply chains to avoid the present standard until the government comes up with definitive regulations to control the industry. The new restrictions will simply exacerbate existing issues while perhaps assisting inefficient rivals. As a result, the new draft regulations must be reexamined.