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Thursday, July 29, 2021

Drafted in the name of consumer interest, the proposed e-commerce rules shield vested interests

Ishan Bakshi writes: In a capital-deficit country, rather than welcoming capital, we seem to be creating more and more hoops for it to jump through

Written by Ishan Bakshi |
Updated: July 15, 2021 8:35:24 am
On the lines of IT intermediary rules, the Consumer Affairs Ministry has proposed to mandate e-commerce companies to appoint a grievance officer, a chief compliance officer, and a nodal contact person “for 24x7 coordination with law enforcement agencies”.

If there was ever any doubt over the pecking order in the Indian retail market from the government’s perspective, then the recently released draft e-commerce rules should put them firmly to rest. The domestic brick-and-mortar stores are firmly on top, followed closely by local e-commerce firms. Foreign e-commerce players are a distant third.

The proposed Consumer Protection (E-Commerce) Rules, 2020, have been drafted ostensibly in the name of the consumer. But the welfare of the consumer seems to be an afterthought. The rules are driven more by the desire to shield the traditional brick-and-mortar stores, and handicap e-commerce firms, especially the foreign ones. They seek to deepen, not paper over, existing fault lines.

Take, for instance, the fall-back liability clause. Under this provision, e-commerce entities will be liable in case suppliers on the platform fail to deliver the goods to consumers, causing them a loss.

Now, e-commerce firms in India operate through either the inventory model or the marketplace model. As FDI is permitted only in the latter — under this framework, e-commerce platforms don’t hold inventory, but simply connect buyers and sellers — foreign players typically operate through this model. But, considering that these platforms exercise little or no control over the inventory under this model, how can they be held liable for the sellers’ actions? In fact, shouldn’t such platforms — considering that it is government policies that discriminate against foreign e-commerce platforms, not allowing them to operate through the inventory model — be provided safe harbour? In a capital-deficit country, rather than welcoming capital, we seem to be creating more and more hoops for it to jump through.

It doesn’t just end here. On several arguably contentious issues, the draft rules appear to have pronounced judgement even though the cost-benefit analysis isn’t that straightforward nor is the impact on consumer welfare easily discernible. For instance, there is considerable ambiguity over the new rules, which mandate that none of the platform’s related parties can sell directly to the consumer through the platform. Also under the regulatory glare, despite clarifications, are flash sales. But wouldn’t curbs on related parties or flash sales adversely impact both consumer choice and price?

Considering the complex nature of some of the issues, the Competition Commission of India (CCI) had called for a more considered approach in its market study on e-commerce. For instance, on issues such as exclusive agreements of firms with such platforms, or on the preferential treatment given to their own and related party products, or for that matter the effect of deep discounts on competition, the report did not make sweeping judgements. Rather, it argued for a case-by-case determination; not to straitjacket the regulatory architecture that governs e-commerce platforms, especially the foreign-owned ones, as the draft rules seek to do.

Curiously, the draft rules also require e-commerce platforms to identify goods based on their country of origin. And when goods are being viewed for purchase by consumers, the rules also mandate platforms to provide suggestions to ensure “fair opportunity” for domestic sellers. This is perplexing, to say the least. Will this provision lead to a greater preference for domestic goods? And why is the Make in India campaign being pushed through the Consumer Protection Act? Surely, if domestic manufacturers are competitive, consumers will automatically gravitate towards them. Interests of consumers, not domestic manufacturers, should be at the core of the consumer protection framework.

Then, there are issues of overlapping/competing jurisdictions.

The draft rules have sought to safeguard consumer data by restraining e-commerce firms from making “available any information pertaining to the consumer to any person other than the consumer without the express and affirmative consent of such consumer”. But shouldn’t data protection be governed by the provisions under the Personal Data Protection Bill and not the Consumer Protection Act? Or will the data protection authority cede jurisdiction to the consumer protection authority? Considering the graded approach that is likely to be adopted under the Data Protection Bill, an e-commerce user’s data could be classified as per its vulnerability and be left under the jurisdiction of the data protection authority.

Similarly, the rules also state that e-commerce entities are prohibited from abusing their dominant positions in the market. For this purpose, the “abuse of dominant position” has been given the same meaning as that prescribed under Section 4 of the Competition Act, 2002. So, will the new consumer protection authority also wade into issues of abuse of dominant position — the domain of the Competition Commission of India? Considering that some of the contentious issues that have been raised over e-commerce platforms are being looked into by the CCI, will the new authority also acquire jurisdiction from CCI?

Or will these rules lead to institutional conflict on the lines of the one between the Telecom Regulatory Authority of India (TRAI) and CCI? And, if so, will the sector regulator be empowered to look into jurisdictional issues first, following which the jurisdiction of CCI can be enforced — in line with the Supreme Court ruling in Competition Commission of India v Bharti Airtel Limited?

The lines of demarcation that have been drawn up in the retail landscape — single brand vs multi-brand, online vs offline, domestic vs foreign — serve only to protect powerful vested interests, not benefit the consumer as is often proclaimed. They are purely a function of ownership. If not, then surely a similar regulatory architecture ought to be brought for offline brick-and-mortar stores, and equivalence be sought between domestic and foreign e-commerce firms. The former, after all, pose the same “perceived” existential threat to traditional retailers as the latter.

This column first appeared in the print edition on July 15, 2021 under the title ‘For consumer, a bad bargain’.

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