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Saturday, July 24, 2021

An uneven field

Draft e-commerce rules raise concerns of regulatory overreach. Welfare of consumers must be firmly at centre of policy.

By: Editorial |
Updated: July 7, 2021 7:27:48 am
The draft rules call for putting in place a fall-back liability clause. According to this, e-commerce firms will be held liable in case a seller on their platform “fails to deliver goods or services due to negligent conduct” causing a loss to the consumer.

The government has argued that the draft e-commerce rules — on Monday, the ministry of consumer affairs postponed the deadline for comments and suggestions on the proposed consumer protection rules from the earlier target date of July 6 to July 21 — seek to protect the interests of consumers, curb unfair trade practices, and encourage free and fair competition. It goes without saying that measures designed to elicit greater cooperation from e-commerce firms, ensure greater responsiveness to issues of consumer welfare, are welcome. As such, rules that require the appointment of a chief compliance officer and a resident grievance officer to ensure that consumer grievances are settled in a timely manner are steps in the right direction. But the proposed rules also seek to harden considerably the regulatory architecture in the online retail space, restrict the room for manoeuvre that e-commerce companies have, and create more ambiguity over their operations, without imposing similar constraints on their traditional brick and mortar competitors.

There are specific points of concern. The draft rules call for putting in place a fall-back liability clause. According to this, e-commerce firms will be held liable in case a seller on their platform “fails to deliver goods or services due to negligent conduct” causing a loss to the consumer. But this raises a question: If an e-commerce firm exerts no sway over the inventory, then can it be held responsible for the actions of the seller? Similarly, there is also ambiguity over flash sales. The ministry first noted that “only specific flash sales or back to back sales which limit customer choice, increase prices and prevent a level playing field are not allowed.” While it later elaborated that it will not regulate flash sales, it is puzzling how sales limit consumer welfare. Where is the cost-benefit analysis? Another rule that deals with related party transactions has caused much consternation. Under this, related parties of an e-commerce platform cannot be sellers on that platform. Contrary to expectations, doing so would tend to limit, not enhance, consumer choice on the platform.

Considering that such restrictive rules do not apply to the brick and mortar stores, which engage in discounts, end of season sales, and special tie-ups with manufacturers, imposing such restrictive regulations on e-commerce platforms lends credence to the charge that the rules were designed giving greater weightage to the interests of traditional retailers, rather than consumers, or small and medium sellers on the platforms. Vagueness in some of the terms employed in the rules, which leaves room for discretion in implementation, also raises apprehensions of greater regulatory intervention. These concerns need to be addressed. Policy should aim to reduce information asymmetry, facilitate competition, and bring greater transparency in pricing. In trying to enhance consumer welfare, it should not end up decreasing it.

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