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Will new e-commerce rules do more harm than good?

The next leap in economic growth is premised on the value multiplier of the digital economy, whose future in India appears cloudy with a storm of overbearing regulation fast approaching

Policymaking in the digital economy must shed the old notions of sovereign power and make regulation a multi-stakeholder process Policymaking in the digital economy must shed the old notions of sovereign power and make regulation a multi-stakeholder process

The e-commerce growth story in India in recent years is a validation of the promise of the Great Indian Market. The success of e-commerce provided a vision for bringing the fruits of the digital economy to the real economy. The threat of overbearing regulation is soon likely to turn this dream run into a nightmare. 
 
The government has proposed sweeping amendments to the Consumer Protection (E-Commerce) Rules, 2020. This comes only eleven months after the rules were initially brought into force. The new rules contain restrictive and onerous obligations on e-commerce platforms. This adds to the overall upheaval caused by uncertainty stemming from invasive regulatory action.  
 
The rules are overbroad and use vague terms that are certain to result in a capricious regime. It seeks to replace business decision-making with regulatory diktat. 

Also Read: Draft e-commerce rules: Other countries' laws stricter than India, Centre tells Amazon, Flipkart, others

It seeks to establish new exacting standards that limit online retail as compared to even offline retail. These changes will substantially reduce the overall value multiplier advantage of e-commerce. It also adversely impacts the ability of the consumer to buy the best products at the cheapest price.  
 
E-commerce as a sector is not just about behemoths such as Amazon or Flipkart. The sector holds out as an instrument for any consumer business to tap into the national market. These platforms significantly reduce the capital requirements for any consumer facing business that comes with physical outlets. 


The sector is an important means by which India can become a truly integrated national market by removing barriers to internal trade. The policy formulation for the sector therefore must bear in mind the central place e-commerce is likely to have in the economy of the very near future.  
 
The rules require that the country of origin of imported goods must be disclosed to the consumer. It goes further to require e-commerce platforms to provide domestic alternatives to these goods. This obligation is not cast on offline stores. It has no nexus at all with the goal of consumer protection, which is the avowed purpose of the rules. This requirement ultimately hurts the consumer whose interests are served by open competition that will enable him/her to buy the best product at the lowest price.  

Also Read: Draft e-commerce rules: Govt extends deadline for submitting comments till July 21

The rules propose to outlaw flash sales that take place on e-commerce platforms. Flash sales give an opportunity to consumers to purchase goods at low prices. There is no similar restriction for offline retail outlets. There is no consumer protection interest that is served by the introduction of this restriction. In the end, the consumers who benefit from these sales are denied the benefits of fierce competition in the e-commerce space.  
 
The rules as proposed seek to cover all entities in the e-commerce space irrespective of their role in the completion of a sale. For instance, even the delivery logistics provided is subject to these rules. This inclusion is beyond the scope of the enabling act, which applies only where there is a business-to-consumer relationship. 


It specifically excludes business-to-business transactions for commercial purposes from the act. This inclusion casts an unnecessary regulatory burden on enterprises that benefit from primary sales on e-commerce websites. This results in no enhancement of protection to consumers.  
 
Marketplace models in e-commerce provide a means to a large number of consumer businesses to access the national market. It is this model by eliminating the pre-condition of substantial capital and operating costs involved in offline stores, unleashes the tiger spirit of small entrepreneurs. It is this model that brings the fruit of a large consumer base to the doorstep of every business.  
 
The rules now propose to make marketplace platforms have 'fallback liability' for goods sold. This destroys the entire incentive of setting up marketplace platforms. As an example, this situation is comparable to holding a mall responsible for the sales made in their individual shops. This change strikes at the very root of a marketplace model which has the potential to be a value multiplier for a large number of businesses across the board.   
 
These policy proposals reflect the absence of good faith in policymaking. It clearly demonstrates that these proposals are introduced for oblique motivations of skewing market forces in a particular direction. Policymaking in the digital economy must shed the old notions of sovereign power and make regulation a multi-stakeholder process. This multi-stakeholder approach requires transparency and loyalty to stated policy objectives.  
 
The world looks at India for a counter-narrative to the state-dominated economic prosperity of China. India seeks to prove that a democratic free-market system can take an emerging economy to the position of a dominant economy on the world stage.

The proposed rules seek to supplant business decision-making and retard the competitive spirit that benefits consumers at large. The proposals also come close on the heels of new intermediary guidelines. It creates an overall impression of unpredictable and vindictive policymaking. 

It signals to the world a regulatory invasion by the government into the digital economy. The next leap in economic growth is premised on the value multiplier of the digital economy, whose future in India appears cloudy with a storm of overbearing regulation fast approaching.  
 
(The author is an advocate based in New Delhi who advises on technology policy and regulatory matters.)