The intent of the rules is unclear and there are several consumer protection rules already in place
In June, the Union Ministry of Consumer Affairs, Food and Public Distribution came out with a list of proposed amendments to the Consumer Protection Act of 2019. These include appointment of a Chief Compliance Officer and a Resident Grievance Officer, provisions of fallback liability, registration of e-commerce entities and a ban on flash sales. The Centre claims that these amendments try to rein in unfair trade practices adopted by e-commerce companies and intend to take care of the interests of consumers. But not everyone agrees. Anupam Manur and Prithwiraj Mukherjee discuss the proposed amendments in a conversation moderated by Prashanth Perumal J. Edited excerpts:
What is your view on the draft e-commerce rules? Do they favour the consumers as the government claims?
Anupam Manur: I’m critical of these new set of rules on multiple accounts. The first is the sheer scope of the law. The rules are applicable to all goods and services bought or sold over a digital or electronic network. When we say “all goods and services”, it includes your food delivery apps, hotel booking websites, etc. So, basically any kind of e-commerce. That’s a large move to be coming from the Ministry of Consumer Affairs, which brings me to my second point about overlapping jurisdictions. There’s a lot of talk about dominant firms. The regulation of these firms should actually come within the ambit of the Competition Commission of India. Then there’s talk about data privacy, which again is an issue which should be addressed by a data protection law. I think the rules are largely trying to push the government’s ‘Make in India’ initiative and favour small and medium scale enterprises, all under the veil of consumer protection.
Prithwiraj Mukherjee: The draft is very complicated and the intent of the new rules is not clear. I’m assuming that the intent is to prevent one or two dominant firms from taking over not just e-commerce but commerce in general. But it’s one thing to have a law and another thing to uphold that law. I’ll give you an example from a slightly different domain. For a long time, we have what is known as a ‘Do Not Disturb’ list in our mobile phone sector. And most of us are probably registered on that list. Has that stopped you from getting spam? In fact, my service provider is sending me spam from scammers. And I am reasonably certain that these people are doing it through the service provider and that they didn’t get my number through any other way. If we were to bring this into e-commerce, the question is whether the same thing is going to happen with the new draft rules. I don’t know. So, how you uphold a legislation is just as important as the legislation itself.
Don’t you think putting the rules down on paper gives power to government officials to go after companies that break the rules?
Prithwiraj Mukherjee: In principle the draft rules seem okay. There might be hidden consequences that we’ll discover only with time.
Anupam Manur: Even in principle, the draft rules are unnecessary. E-commerce platforms already have customer care centres where you can lodge complaints. There is competition between platforms. Beyond that, there are a lot of other quality checks that these marketplaces put in place. There are consumer courts that cheated customers can access. I don’t think you need a separate nodal officer or a grievance officer. That just adds to the bureaucracy. Anyway, there’s not enough state capacity for implementing some of these rules. If you start a law knowing that you can’t implement it, I think it’s bound to fail.
Among other things, the draft asks companies to favour domestic goods over foreign ones. Do you smell any protectionism in the new rules?
Prithwiraj Mukherjee: You’re using protectionism as a bad word. Every country has its own form of protectionism. In fact, the moment you charge an import duty, it means you are implicitly protecting your own people against some other country’s imports. That said, what we know is that a big company will always find a way to subvert a few laws. Let me give you the example of a ban on tobacco advertising. Did that stop India’s largest tobacco company from sponsoring a World Cup or the Indian cricket team? No, the company just found another way. At the end of the day, I think it is about ticking boxes. The spirit of the rule will never be implemented. What will happen is that companies will find increasingly creative ways of subverting the letter of the law.
Anupam Manur: The fact that they’re asked to provide a domestic alternative at the same time… I think that’s not a level playing field. I don’t see any kind of economic reasoning for why an e-commerce marketplace has to push for a domestic alternative. If the domestic alternative is really that good, that company can compete. People will choose based on the quality of the products, price, etc. So, I will say that this is protectionism. To me, marketplaces being asked to provide domestic alternatives reeks of protectionism.
Could there be unintended consequences due to provisions such as the ban on flash sales, fallback liabilities, etc.?
Anupam Manur: I don’t even see how the ban on flash sales is supposed to help consumers. You would think that flash sales help consumers. Second, the wording of the provision is just so wrong. They’ve said things like “significant reduction in price”. What do you mean by a “significant reduction in price”? Is a 20% discount significant for an iPhone? The rule is just open to different interpretations. But, as Prithwik said, these big companies are experts at regulatory arbitrage. They will find a way to negotiate and navigate through these things. It will be the smaller sellers and e-commerce platforms that will not be able to navigate through these laws. So, what you’re doing, in fact, is the opposite of what you wanted to achieve, which is to help out your small sellers. The draft rules are just going to increase costs for e-commerce.
Regarding fallback liability, again it makes no economic sense. It displays a brazen misunderstanding of what marketplaces are supposed to be. It’s like holding a kirana store liable for selling you washing powder that is defective. That’s not how marketplaces work.
Prithwiraj Mukherjee: I agree with Anupam on the issue of flash sales. I think it’s a terrible idea for the brand: it devalues your brand but that should not be the regulator’s concern. But I will say something about deep discounting. Now, the draft does not really specify what exactly constitutes a deep discount. But let’s go a little bit into the history and understand why they may have done this. In the U.S., there are some big players with big pockets who did what is known as loss leader pricing. Walmart, for example, would go into a small town in the U.S. and set up business. It would then offer expensive products such as medicines for free. This caused small pharmacies that cannot match Walmart to go out of business. If you look at the American retail space, the small-time retailers essentially went out of business.
France realised that deep discounting can create problems. So, what it mandated is that you cannot sell anything cheaper than the price you bought it for. So, you have to actually talk about your procurement price. And there are only two approved sales seasons a year when stores can get rid of excess inventory by selling at lower than the cost price. The idea is to prevent a Walmart-like situation. So, in principle, I am not against having a law against deep discounting.
Anupam Manur: I think retail density in India is amazing compared to many countries in the world. So, again, this comes back to the question of necessity. Do we need this law in this fashion at this moment? The answer is no. You have to do a cost-benefit analysis comparing the harm that the rules can potentially cause versus the potential benefits. I think the harm is higher at this point. There is a lot of competition among e-commerce retailers. So, I don’t see a need for this law just yet. I don’t think it is forward-looking either.
What do you see as the real reason behind these rules?
Anupam Manur: I think we’ll be going into speculative territory, which is slightly unsafe. But in most people’s reading, it is just to help consumers. But if you look at the overall policy approach taken by this government over the last few years, that tells me that the government wants to encourage ‘Make in India’ because that’s one of its flagship schemes. They are trying to do this through rules without realising the kind of harm they can do in the long run, even for the domestic Indian firms. A series of steps in different domains — from increasing import tariffs on various products to encouraging domestic manufacturing — tell me that they want promote domestic industries.
Prithwiraj Mukherjee: It is difficult to impute motives. But even if you were to impute motives, I don’t think vote bank politics is relevant here. I don’t think anybody’s going to vote based on these rules. Could there be lobbyists? Yes. But I am not willing to speculate.
What kind of rules would actually protect consumers?
Prithwiraj Mukherjee: There are two principles. One is that consumers should not be cheated. So, any law that deals with deceptive advertising, leaking of data, spamming, etc. is in principle desirable. The second is that the monopolist should be properly regulated. Even the most capitalist economies will take action against monopolies. The other thing is you have a large number of gig workers in the e-commerce sector. Their needs need to be addressed.
Anupam Manur: Before any form of government intervention, I would ask what is the market failure that you’re trying to address. Concentration of market power is a genuine concern that requires some form of intervention, but not through consumer protection tools. You have an entire body dedicated to doing this, which is called the Competition Commission of India. The second kind of market failure could be information asymmetry. But remember the whole point of the e-commerce marketplace is to reduce information asymmetry as well. Consumers can compare different products, rate and review products, etc. If you need to do something more, you can set quality standards. Beyond that, people who have been cheated have a consumer court. If you look at our standard shopping experience, sometimes you can buy things which are substandard. You either live with it and learn from the experience and buy better next time or if you’re deeply hurt and it’s a really expensive buy, you move the court. Consumers already had these options available to them. There’s no reason why a lot of the consumer protection rules that the government has come up with for the e-commerce retailers should not apply to brick-and-mortar stores. The fact that they’re going after e-commerce alone should tell you that their entire motive is different.
Prithwiraj Mukherjee is Assistant Professor at IIM, Bangalore; Anupam Manur is Assistant Professor at the Takshashila Institution