The proposed rules have created quite a stir among companies, with some anticipating a change in their business structure if these are implemented
Conventional flash sales are not banned, but ‘fraudulent’ and ‘back-to-back’ flash sales cannot take place
The week began with the government proposing a slew of changes in the consumer protection rules that, besides protecting the interest of consumers, aim to make e-commerce companies more accountable and responsible. The rules have created quite a stir among companies, with some anticipating a change in their business structure if these are implemented. Why are e-commerce firms worried and what will change for online shoppers? Let’s find out.
Why has the government proposed the new e-commerce guidelines?
The amendments to the Consumer Protection (E-Commerce) Rules, 2020, which the Ministry of Consumer Affairs made public on Monday, apply to both domestic and foreign e-commerce companies and are currently in the draft stage. The ministry has sought comments from all stakeholders by July 6. It has said that over the last one year, the government received several representations from consumers as well as traders and associations, complaining against cheating and unfair trade practices in the e-commerce ecosystem. Besides, regulatory oversight for the sector was much needed, it said.
Who are the stakeholders?
All companies that qualify as e-commerce. According to the definition provided in the rules (unchanged from last year), they apply to “all goods and services bought or sold over digital or electronic networks including digital products”. This means everyone, from Amazon, the Walmart-owned Flipkart, Snapdeal and Myntra to the more specialised vertical-led platforms such as FirstCry, Nykaa and so on.
Government officials said that taxi aggregators such as Ola and Uber, food aggregators like Zomato and Swiggy, online grocery stores such as BigBasket, among others, will also fall under the ambit of the proposed rules. Even Facebook Marketplace, which facilitates buying and selling over the social networking platform, will have to comply.
So, what is problematic about this?
For the consumer, it could mean no flash sales or online platforms offering substantial discounts or promotions for a very short period of time. The consumer affairs ministry later clarified that conventional flash sales are not banned, but “fraudulent” and “back-to-back” flash sales cannot take place. Industry executives are awaiting clarity on the finer details of what constitutes “conventional” flash sale and what doesn’t.
The draft rules would also increase the compliance burden of e-commerce firms. For instance, the rules require all e-commerce firms to appoint a grievance officer, a chief compliance officer and a 24×7 nodal officer.
Further, there are several proposals that would require either a change in their existing business model or for them to make product changes. There is, for instance, the liability point. The proposed rules make e-commerce marketplaces responsible for the sellers’ activities. The argument from players is that they are a marketplace, so they do not have any relationship with the seller; so then how can they be held liable? Moreover, the earlier rules mandated that marketplaces keep a distance from sellers.
What kind of changes will companies have to make?
The rules, for instance, ask e-tailers to send a notification and suggest “alternatives” before a consumer buys a product to give a fair opportunity to goods manufactured in India. They will not only have to rank goods but also come up with a framework such that the ranking does not discriminate against domestic goods and sellers.
Also, no marketplace or e-commerce entity will be allowed to sell goods or services to any person who is registered as a seller on its platform.
And, they will have to ensure that marketplaces do not use any information collected through their platforms for the unfair advantage of their own associated enterprises. So, for example, Nykaa cannot use the data it collects through its platform to sell its own products. Similarly, Amazon has a private label called Solimo. According to the new rules, it cannot promote Solimo over other brands selling similar stuff.
Companies argue that with such restrictions, building a private label will be near impossible.
But wasn’t an e-commerce policy already in the works?
Yes, a draft e-commerce policy was proposed by the Department for Promotion of Industry and Internal Trade (DPIIT) under the Ministry of Commerce and Industry in 2019. It was rolled back after opposition from some quarters. DPIIT will roll out a comprehensive e-commerce policy soon.
The much-awaited policy will be implemented by making changes in the foreign investment rules, consumer protection rules as well as Information Technology Act.
Is this good for consumers?
Seemingly, yes. But the argument can go both ways.
Many of the new proposals go against what happens in the offline world. A flash sale, for example. Offline retail stores often have select previews and better discounts for their loyalty programme customers. If the argument is to have a level playing field — offline retailers have for long said they can’t compete with the deep discounts online stores offer in such flash sales — the field isn’t the same in the offline world either. Paying loyalty programme members, after all, do get priority over regular customers.