New rules will choke e-commerce growth, Indo-American Chamber tells Govt

Says proposed amendments will increase compliance liabilities, can affect investor sentiment globally especially with respect to 'Ease of Doing Business'

The proposed amendments to the Consumer Protection (E-Commerce) Rules, 2020, that are envisioned to protect consumer interests, may further compound the impact of multiplicity of regulations on the e-commerce sector, the Indo-American Chamber of Commerce (IACC) had told the Ministry of Consumer Affairs. IACC, the apex bilateral chamber for Indo-US business, had told the government that the proposed amendments would increase compliance liabilities that risk severely impairing the growth of the sector.

“We also draw your attention to the fact that such a measure will affect investor sentiment globally, especially with respect to ‘Ease of Doing Business’ in the country,” said IACC national vice president Dr Lalit Bhasin in a letter addressed to Anupam Mishra, joint secretary, Department of Consumer Affairs Ministry of Consumer Affairs, Food and Public Distribution Government of India. The letter dated July 2, 2021 has been seen by Business Standard.

According to industry sources, Amazon has so far committed $6.5 billion to the India market. The firm had said it remains committed to its pledge to digitise 10 million micro, small and medium enterprises (MSMES), enable $10 billion in exports and create incremental one million jobs by 2025. Walmart, the world’s largest retailer bought Indian company Flipkart for $16 billion in 2018.

According to industry sources, Amazon and Walmart-owned Flipkart dominate the e-commerce space in India. However only 7 per cent of the $1.2-trillion retail market is online, and Amazon and its rivals including  Flipkart and Reliance’s JioMart are aggressively eyeing the remaining 93 per cent.

The IACC letter said that over the last few years, the contribution of e-commerce in propelling India's growth story has been significant. It has provided choice, convenience and value to consumers and given unparalleled access to small traders and MSMEs (micro, small and medium enterprises). It has generated massive employment as well as having had a multiplier effect on allied eco-systems, ranging from logistics to payments.

As India's transitions into a modern retail economy, e-commerce is a sunrise sector with immense growth opportunity and the potential to drive consumption growth. It is also a critical tool to integrate national and global markets by removing barriers to trade and to promote small businesses by providing them increased market access allowing them to sell their inventories by accessing a large consumer base, with minimal marketing and logistics costs, thereby providing livelihoods for many. “The past few months have seen an increased e-commerce adoption owing to the pandemic and in over time, the sector has also created millions of jobs in ancillary industries and given retail a whole new dimension,” said the IACC letter.

It said there are multiple provisions within the proposed amendments, and there is a concern that they may impinge on the business operations of e-commerce companies. Some provisions may also be read as pertaining to trade activities rather than overall consumer interest, which are covered as stated in other regulatory formats.

IACC said lack of categorisations regarding what constitutes an 'e-commerce' entity poses the same burden of  compliance for a small retailer with an online presence to that of a very large platform. In its present form, even logistics players that are "engaged by such person for the purpose of fulfilment of orders placed by a user on its platform" may be considered as e-commerce entities. And if this is so, this may increase their liabilities considerably and hence disincentivising them to work in the e-commerce sector. This categorisation needs to be defined better. For functional definitions of such nature that are industry specific, it is imperative that the proposed regulations are enacted in good faith with an eye to develop the overall growth of the e-commerce sector in India. To this regard, having a principal based light touch regulations in place of stringent definitions as the amendments propose is a better approach to undertake.

The amendments also propose that "every e-commerce entity which intends to operate in India shall register itself with the Department for Promotion of Industry and Internal Trade (DPIIT) within such period as prescribed by DPIIT for allotment of a registration number. Provided that the DPIIT may extend the period for registration of such e-commerce entity for sufficient reason, to be recorded in writing". E-commerce firms are already registered in India with the Ministry of Corporate Affairs, and the provision leaving registration open-ended is likely to cause an additional burden. It is recommended that the dual registration clause be done away with in the spirit of "Ease of Doing Business".

IACC said ambiguous definitions of what constitutes a 'flash sale' or what is "fraudulently intercepting the  ordinary course of business operations in a 'flash sale" may lead to inconsistent application of the rules and open the door to discretionary action. This is also applicable in the case of defining "cross-selling" and "mis-selling" in the platforms. This provision also deeply impacts small e-commerce platforms. If the intent of these provisions is to dispel allegedly predatory or discriminatory market activities, this is already covered under the Competition Act 2002. In the spirit of maximum governance, minimum government, and ease of doing business for all entities participating in this critical sunrise sector, it is recommended that these provisions too are done away with. The proposed provision is also defeating the premise of a level playing field between offline and online retail by creating an additional layer of complexities for online retail.

Provisions pertaining to 'abuse of dominance' or providing information to government agencies for  'investigative' or 'protective' or 'cyber security activities' are already being covered in other laws such as Competition Act 2002 and the draft Personal Data Protection Bill 2019. These additional provisions create needless confusion in terms of compliance for the industry and may be done with.

IACC said the provision of "fallback liabilities” for e-commerce marketplaces is entirely uncalled for. In all  fairness, the liability should lie with the seller. More so in a marketplace model where e-commerce entities hold no control over inventory. Further, such a provision is likely to impact smaller e-commerce companies that will feel the brunt of these liabilities, inhibiting their growth.

“As a result of the reasons highlighted above, we would humbly request that the aforementioned provisions in the proposed amendments to the Consumer Protection (E-Commerce) Rules, 2020 are reconsidered,” said IACC.

It said while protecting the interests of consumers is of paramount importance, at the same time regulatory action should not stifle the growth of the sector. It said this would ultimately hurt the interest of the consumer, as well as small sellers, retailers, logistics providers and other stakeholders reliant on the sector for their livelihood.