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Explained: The New Ecommerce Rules and Why Amazon and Flipkart are Against Them

Editor, TRANSFIN.
Jul 6, 2021 1:07 PM 5 min read
Editorial

Major ecommerce players in India, including Amazon, Flipkart and the Tata Group, are growing increasingly worried.

Why?

On June 21st, the Government proposed certain amendments (notification) to the Consumer Protection (E-Commerce) Rules, 2020.

Citing the need to act against "widespread cheating and unfair trade practices", the new rules set the stage for an even more stringent regulatory regime for the ecommerce sector.

Unsurprisingly, companies have come out against the “exhaustive and confusing” amendments, warning that they would hurt sellers and hurt their business models.

Let’s look at what was expected, and what wasn’t.  

 

The Usual Suspects

Some of the proposed amendments are similar to the ones implemented by the intermediary IT Rules on social media platforms. These include the appointments of a grievance officer, a chief compliance officer and a nodal contact person “for 24×7 coordination with law enforcement agencies”.

If implemented, the new rules would also require companies to share relevant information with a Government agency for "investigative or protective or cyber security" reasons, among others. Such info would have to be provided within 72 hours of the receipt of an order.

Some other changes were long-anticipated or not objectively controversial. The new rules seek to restrict companies from “manipulating search results or search indexes” to act against preferential treatment to some sellers. In a nod towards Atma Nirbhar Bharat, the companies will also have to provide domestic alternatives to imported goods. Products which are pushed under “sponsored” listings would have to be demarcated distinctly so that the consumer knows about the arrangement.

And any personal information or data about a consumer will not be allowed to be shared by the marketplace with another party without express and affirmative consent of the consumer (which cannot be recorded automatically). There are also provisions against cross-selling (sale of goods related to a purchase) and mis-selling (selling goods via deliberate misrepresentation of information).

 

Hot Under the Collar

Moving on to the commandments that have furrowed e-tailers’ brows, restrictions on flash sales by ecommerce entities may be incoming. These don’t include conventional discount sales but specific back-to-back sales "which limit customer choice, increase prices and [prevent] a level playing field". The argument is that these companies conduct extravagant sales with deep discounts and offers at the expense of other sellers, only to increase prices after some time to restore margins.

Every ecommerce company might have to register with the Department for Promotion of Industry and Internal Trade (DPIIT) for “allotment of registration number which shall be displayed prominently on the website as well as invoice of every order placed”.

Significantly, a “fall-back liability” has been introduced. This means that if a seller fails to deliver the goods or services due to negligent conduct, thereby causing a loss on the customer, the online marketplace would be liable to resolve the issue, not the seller.

The rules in place for "private labels" could be tightened to discourage the use of an ecommerce firm’s brand entity for the promotion and sale of goods. For example, Amazon Basics, the conglomerate’s private brand that sells everything from t-shirts to tech accessories. The Rules seek to define these companies as merely shopping platforms as opposed to their current status where X has inventories with its own products that X tries to sell on X’s ecommerce website along with competitors’ products - a clear-cut conflict of interest.

Moreover, companies like Amazon and Flipkart might no longer be allowed to be enlisted as sellers on their own platforms. Any “related” entity having 10% or more common ultimate beneficial ownership will be considered an “associated enterprise”, which would also face restrictions (remember we talked about Amazon’s nexus with Cloudtail and Appario?). 

 

Action and Reaction

Now, two things have particularly invited flak.

First, the proposed restrictions on private labels. One conglomerate that would be adversely affected would be the Tata Group, which has a slew of consumer products under its brand name. Not allowing it to sell its own products on its own ecommerce platform would adversely affect its operations (besides harming its march towards building a super-app). Amazon Basics

FYI: The Government tried to ban private labelling two years ago - before doing a U-turn.

Second, the related-party clause. Not being able to sell their affiliates’ products would grossly affect platforms like Amazon and Tata (which has a joint venture with Starbucks in India).

 

The Road Ahead

If the proposed amendments are implemented, all big ecommerce companies would be in dire straits. Not just the usual targets of regulatory ire like Amazon and Flipkart. But also other players that operate digital marketplaces where they sell their own products, including BigBasket (it sells a long list of groceries under its brand) and JioMart (again, a wide offering of in-house products).

Fresh off its implementation of the IT Rules, the Government seems to be out for blood. Of course, it’s important to put things in context. Unlike the IT Rules, the new ecommerce rules are something we may have difficulty faulting regulators over. After all, companies like Amazon are indeed known to have played fast and loose with the law. And unlike the social media rules where the issues were more...ethical in nature vis-a-vis free speech and minimum government, the ecommerce rules claim to champion a more level-playing field and address the very-real power imbalance between small Indian retailers and large multinational corporations.

Officials have not yet acquiesced to industry reps’ request for a deadline extension beyond July 6th. Either way, given its well-documented distrust of big e-tailers and considering how it held its group vis-a-vis the recent IT Rules, it’s safe to assume that the Government will give no quarter.

FIN.
 

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