Why in news?
The government has proposed changes to the e-commerce rules under the Consumer Protection Act to make the framework under which firms operate more stringent. It comes 11 months after the Government notified the Consumer Protection (E-Commerce) Rules, 2020, The latest proposals aim towards greater compliance and protecting the interests of consumers.
Before we jump into the discussion, let us know some basics about e-Commerce.
- What is e-Commerce? It simply refers to a process where commercial transactions such as buying and selling are taking place online.
- Over a period of time, not just in India but around the world also, the concept of e-Commerce has developed and it has grown at an exponential rate. With the rapid expansion of this particular industry, it has become necessary to regulate this industry.
- The United Nations General Assembly set up UNCITRAL in 1996 and it has come out with some model laws with respect to e-Commerce.
- These model laws allow the various member countries to have their own laws to regulate the e-commerce industries.
E-Commerce Regulation in India
- Based on these kind model laws, the Government of India introduced the Information Technology Act, Consumer Protection Act (specifically for e-Commerce).
- Consumer Protection Act is considered to be magna-carta in the case of Indian economy which protects the interests of consumers. The Act was introduced in 1986 and amended in the year of 2019.
- Section 94 and 101 of Consumer Protection Act, 2019 specifically deals with the ecommerce industry. The Ministry of Commerce and Industry has earlier released a few sets of rules to govern the e-commerce operators. Now, the new rules are issued by the Consumer Affairs ministry to deal with ‘unfair’ trade practices that hurt customers.
- Several proposals in the draft e-commerce rules are aimed at increasing liabilities for online retailers. Major industry bodies, including the Confederation of Indian Industry (CII), Federation of Indian Chambers of Commerce & Industry (FICCI) are expected to hold meetings with e-commerce firms and other stakeholders, to discuss amendments to the e-commerce rules.
About the Draft E-commerce rules
- Mandatory registration for e-commerce entities: Any online retailer will first have to register itself with the Department of Promotion for Industry and Internal Trade (DPIIT).
- Requiring e-commerce entities offering imported goods or services to ‘incorporate a filter mechanism to identify goods based on country of origin.
- Appointing a chief compliance officer.
- A nodal contact person for 24×7 coordination with law enforcement agencies.
- Specific flash sales or back-to-back sales “which limit customer choice, increase prices and prevent a level playing field are not allowed”.
- Govt will not seek disclosure of other flash sales from e-commerce companies.
- Introduced the concept of “fall-back liability”: The rules made the e-commerce firms liable in case a seller on their platform fails to deliver goods or services due to negligent conduct, which causes loss to the customer.
- All e-commerce entities must provide information within 72 hours on any request made by an authorised government agency, probing any breach of the law including cybersecurity issues.
E-Commerce Models in India
- Inventory based model of e-commerce: means an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly. FDI is not permitted in inventory based model of e-commerce. Example – Grofers, E-Bay.
- Marketplace based model of e-commerce: Marketplace based model of e-commerce means providing of an information technology platform by an e-commerce entity on a digital & electronic network to act as a facilitator between buyer and seller. 100% FDI under automatic route is permitted in marketplace model of e-commerce. Example – Amazon, Flipkart.
What is the need of new set of guidelines?
- Uncompetitive trade practices: The two large e-commerce players(Amazon and Flipkart) have been contending with accusations that their pricing practices are skewed to favor select sellers on their platforms and that their discounting policies have hurt offline retailers. Further, The Competition Commission of India wants to conduct antitrust probes to investigate business practices (Amazon and Flipkart).
- The 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 e-commerce platforms are both players and regulators, as they provide the marketplace and also compete directly with other sellers using it. WS Retail – retail store of Flipkart. This creates a conflict of interest.
Advantages of the draft e-commerce rules
- The rules restrict e-commerce companies from “manipulating search results or search indexes”. It is a long-standing demand from sellers and traders to prevent preferential treatment to certain platforms.
- Further, the rules also mandate the logistics service provider to not provide differentiated treatment between sellers of the same category.
- The rules also protect against unfair trade practices and also against misleading advertising.
- The e-commerce companies will have to provide domestic alternatives to imported goods. This will boost made-in-India goods.
- The proposed amendments will lead to more accountability from stakeholders of e-commerce firms. The e-commerce companies need to provide an explanation on how they rank the products, which consumers can understand easily, and also create transparency.
- With mandatory registration for e-tailers with DPIIT, the fraudulent e-commerce operators can be tackled.