Editorials/Opinions Analyses for UPSC – 23 June 2021

Contents

1. Policy creep: On e-commerce and overregulation risks

Policy creep: On e-commerce and overregulation risks

Context:

Barely 11 months after the Government notified the Consumer Protection (E-Commerce) Rules, 2020, the Department of Consumer Affairs has mooted a set of sweeping amendments, ostensibly “to protect the interests of consumers and encourage free and fair competition in the market”.

Relevance:

GS-II: Polity and Governance (Government Policies & I Interventions for better Transparency & Accountability in Governance), GS-III: Indian Economy

Dimensions of the Article:

1. What is Electronic Commerce (e-commerce)?
2. About the Consumer Protection (E-Commerce) Rules, 2020
3. Issues with the Consumer Protection (E-Commerce) Rules, 2020
4. Amendments proposed to the E-Commerce Rules, 2020
5. Concerns with the new amendments

What is Electronic Commerce (e-commerce)?

• Electronic commerce or e-commerce (sometimes written as eCommerce) is a business model that lets firms and individuals buy and sell things over the internet.
• E-commerce, which can be conducted over computers, tablets, or smartphones may be thought of like a digital version of mail-order catalog shopping.
• Nearly every imaginable product and service is available through e-commerce transactions, including books, music, plane tickets, and financial services such as stock investing and online banking.

E-commerce in India

• Propelled by rising smartphone penetration, the launch of 4G networks and increasing consumer wealth, the Indian e-commerce market is expected to grow to US$ 200 billion by 2026 from US$ 38.5 billion in 2017.
• India’s e-commerce revenue is expected to jump from US$ 39 billion in 2017 to US$ 120 billion in 2020, growing at an annual rate of 51%, the highest in the world.
• The Indian e-commerce industry has been on an upward growth trajectory and is expected to surpass the US to become the second-largest e-commerce market in the world by 2034.

About the Consumer Protection (E-Commerce) Rules, 2020

• The E-Commerce Rules issued by the Ministry of Consumer Affairs, Food and Public Distribution, under the Consumer Protection Act, 2019, apply to:
  • all goods/services bought or sold over digital or electronic network, including digital products,
  • marketplace e-commerce entities (Marketplace Entities) and inventory e-commerce entities (Inventory Entities),
  • all e-commerce retail, including multi-channel single brand retailers and single brand retailers in single and multiple formats such as single brand retailers who use multiple distribution channels such as offline retails stores in addition to e-commerce, and
  • all forms of unfair trade practices (as defined under the CPA 2019) across all models of e-commerce.
• The E-Commerce Rules also apply to entities which are not established in India but systematically offer goods or services to consumers in India.
• The E-Commerce Rules specifically recognize and govern entities that are not established in India but systematically offer goods or services to consumers in India such as offshore online marketplaces.
• In simple words, the Consumer Protection (E-Commerce) Rules, 2020 regulates all commercial transactions sold over a digital or electronic network.

Provisions of the new E-Commerce Rules

• The Consumer Protection (E-commerce) Rules, 2020 are mandatory and are not advisories.
• E-commerce entities are required to provide information to consumers, relating to return, refund, exchange, warranty and guarantee, delivery and shipment, modes of payment, grievance redressal mechanism, payment methods, security of payment methods, charge-back options and country of origin.
• A manufacturer or product service provider or product seller will be held responsible to compensate for injury or damage caused by defective product or deficiency in services

What the new rules seek to achieve?

• The country-of-origin requirement is significant as India and several other countries are currently re-negotiating their free trade agreements.
• E-com rules prohibit unfair trade practices by entities and sellers on marketplaces and manipulation of price.
• The entities are prohibited from manipulating the price of the goods or services to gain unreasonable profit by imposing unjustified price or charges on consumers.
• The new rules also appear to be a move to ensure regulatory and enforcement control over foreign entities who offer goods and services in India and is in line with a similar classification under the Personal Data Protection Bill, 2019, which extends its applicability to foreign entities who carry on business in India.

Issues with the Consumer Protection (E-Commerce) Rules, 2020

• It remains unclear as to what would constitute price manipulation.
• It also remains unclear how the e-commerce entities and sellers are expected to navigate these roadblocks without falling foul of such provisions.
• Both the marketplace entity and sellers are now required to set up a grievance redressal mechanism, small businesses may not be in a position to comply.
• The rules also prohibit an e-commerce entity from levying a charge for cancellation post confirmation.
• While the provisions may be intended as safeguards that ensure a level-playing field, some of these conditions are impractical.
• Applying identical rules does not convey a business-friendly approach.
• Lack of clarity in the rules:
  • There is a lack of clarity regarding what activities may be classified as resulting in ‘unreasonable’ or ‘unjustified’ profits or ‘unfair’ practices.
  • This lack of clarity may result in consumer protection authorities scrutinizing pricing mechanisms used by e-commerce entities.
  • Data-driven pricing may also become an issue when it is used to provide offers or discounts to specific classes of consumers.
  • There is no clarity on what a ‘reasonable basis’ for such a classification may be, and this may lead to uncertainty with respect to the use of algorithms to customize offers or target specific consumers.

Amendments proposed to the E-Commerce Rules, 2020

• Amendments were proposed to the Consumer Protection (E-commerce) Rules 2020 in order to protect the interests of consumers, prevent their exploitation and encourage free and fair competition in the market.
• One of amendments is proposed in order to ensure compliance of the Consumer Protection Act, 2019 and Rules, which mandates the appointment of Chief Compliance Officer, a nodal contact person for 24×7 coordination with law enforcement agencies, officers to ensure compliance to their orders and Resident Grievance Officer for redressing of the grievances of the consumers on the e-commerce platform.
• Another amendment calls for putting in place a framework for registration of every e-commerce entity with the Department for Promotion of Industry and Internal Trade (DPIIT) for allotment of registration number.
• Another amendment has prohibited mis-selling (i.e., selling goods and services entities selling goods or services by deliberate misrepresentation of information) to protect the interests of consumers.
• One of the Amendments has provided that where an e-commerce entity offers imported goods or services, it shall incorporate a filter mechanism to identify goods based on country of origin and suggest alternatives to ensure fair opportunity to domestic goods – to ensure that the domestic manufacturers and suppliers get a fair and equal treatment on the e-commerce platform.
• Through another amendment, provisions of Fall-back liability for every marketplace e-commerce entity have been provided – to ensure that consumers are not adversely affected in the event where a seller fails to deliver the goods or services due to negligent conduct by such seller.

Concerns with the new amendments

• Following on the heels of the recent IT (Intermediary Guidelines and Digital Media Ethics Code) Rules, the draft e-commerce amendments show the Government’s increasing keenness to exercise greater oversight over all online platforms.
  The Centre also appears to be signalling its intent to dig in its heels in an intensifying stand-off with Walmart’s unit Flipkart, and Amazon, which are both now in court battling an attempt by the Competition Commission of India to reopen a probe into their business practices. The two large e-commerce players have had to contend with accusations that their pricing practices are skewed to favour select sellers on their platforms and that their discounting policies have hurt offline retailers.
• The fact that the latest changes expressly seek to ensure that none of an e-commerce entity’s ‘related parties and associated enterprises is enlisted as a seller for sale to consumers directly’ could also impact several platforms that retail products supplied by vendors with arm’s length ties (i.e., when a buyer and seller act independently and have no relationship to each other).
• Protracted legal fights are bound to increase with the enforcement of many of these norms due to the complexities in complying with the amendments,

Way Ahead

• As a growing sector with huge interest from both domestic and international players, it becomes pertinent to regulate E-commerce keeping in mind the interest of both entrepreneurs and consumers.
• A conducive environment and a level playing field should be encouraged while being mindful of shaping a vibrant domestic industry.

-Source: The Hindu