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India’s New E-Commerce Rules: Why it could fail

Nevin Clinton, Flywork.io TeamFlywork.io.

       Over the course of the last few weeks, draft amendments to the Consumer Protection (E-Commerce) Rules, 2020 (hereinafter referred to as ‘E-Commerce Rules’) have been creating quite a stir among companies. The changes that the rules bring in are wide-ranging and require companies to comply with a plethora of norms. Some of these have not been received well by e-commerce companies who have made their disappointment known.

Flipkart and Amazon will suffer losses due to the E-Commerce Rules
    E-commerce companies like Flipkart and Amazon have been aggrieved by the tightening of regulations on their operations due to the draft e-commerce rules. Some of the rules like those limiting flash sales, mandating the appointment of officers and preventing manipulation of users’ search results are all likely to affect these companies. In fact, Reuters has reported that the draft rules are projected to hit the business of these e-commerce companies in the form of losses by the end of this year.

Lack of clarity is an issue
    The lack of clarity in the rules have also not helped the cause. For example, the original proposal completely prohibited all flash sales. However, after the same did not go down very well with the companies, a clarification was issued stating that ‘conventional’ flash sales would still be allowed. However, ‘conventional flash sale’ was not defined.

Several burdensome duties have been imposed
    Another drawback of the draft e-commerce rules is that they impose several new obligations that seem unnecessary. Therefore, they have only led to increasing the burden on the e-commerce companies. For example, the companies must now display the country of origin of all the products listed on their site. This would prove to be quite an onerous task since there are millions and millions of products listed on these sites. Further, the companies have been asked to recommend Indian or local alternatives for foreign products, once again, increasing the burden on them.

Overlap of jurisdiction with the Competition Commission of India
    Yet another drawback and unnecessary addition in the rules is the regulation concerning the abuse of dominant position by a company in the market. Rule 5(17) states that an e-commerce company that holds a dominant position in a market should not abuse the said position. This is exactly what the Competition Act provides as well, leading to an overlap of jurisdiction with the Competition Commission of India. When there is an overlap of jurisdiction, there is always the risk of forum shopping i.e. having cases heard in the forum that is more likely to provide a favourable judgment. 

A ‘one size fits all’ approach is far-fetched
    The Indian government has gone for a ‘one size fits all’ approach with the E-Commerce Rules but when there are such a large number of e-commerce companies of varying size, technical expertise and so on, the approach is bound to fail. The European Union has specialised regulations in this regard and various other countries like the UK and the USA are also leaning towards the same. At a time when applying different regulations depending on the nature and size of companies is gaining global acceptance, India’s E-Commerce Rules stick out. 

Startups will suffer
    Even as large companies like Flipkart and Amazon have expressed disappointment and are bound to suffer losses, they are still likely to recover from the same and get going by complying with the rules. However, it is the startups and smaller companies that will suffer. Complying with the huge amount of rules and liability regimes at an early stage would hurt companies and hence, limit competition in the market. This is especially ironic because one of the objectives of the rules is to ‘encourage free and fair competition in the market’.

There is a need for changes
    The draft E-Commerce Rules are still in their early stages and the government still has plenty of time to make amendments, changes and clarifications. If these are done so in an effective manner so as to remove unnecessary burdens on companies, they could become more effective. Similarly, doing away with the ‘one size fits all’ approach could work wonders but for now, it seems unlikely that the government would do the same. 

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