Share info with Govt, ban on ‘specific’ flash sales: Move to tighten e-commerce norms

Context: Tightening of norms for e-commerce companies  

News: The Ministry of Consumer Affairs, Food and Public Distribution is planning major changes to the Consumer Protection (E-Commerce) Rules, 2020. A range of amendments has been proposed. Comments sought from relevant stakeholders by July 6. 

Background 

• In December 2018, the Industry Department had published changes to its foreign direct investment (FDI) policy for e-commerce. These changes were introduced to tighten loopholes exploited by online marketplaces in previous policies announced by the Centre.  

• Changes included curbing marketplaces from exercising control over inventory and restricting the relationship between the marketplace and sellers on its platform. 

• In the proposed amendments to e-commerce norms, the Government is looking at strengthening these aspects.  
• The proposed rules have been released at a time when DPIIT is also trying to roll out a comprehensive e-commerce policy aimed at addressing the regulatory challenges sector 

What are the Consumer Protection (E-commerce) Rules? 

The Government had notified the Consumer Protection (E-commerce) Rules in July 2020, for online retailers registered in India or abroad but offering goods and services to Indian consumers.  

While the original rules focused on aspects such as transparency about product information to help consumers make informed decisions, the amendments aim to curb the circumventing of other laws.  

Any violation of these rules attracts penal action under the Consumer Protection Act, 2019. 

What is the rationale behind notifying such rules and subsequent amendments? 

Government received several representations from aggrieved consumers, traders and associations complaining against widespread cheating and unfair trade practices being observed in the e-commerce ecosystem.  

• The rapid growth of e-commerce platforms has also brought into the purview the unfair trade practices of the marketplace e-commerce entities. They frequently engage in manipulating search results to promote certain sellers, preferential treatment to some sellers, indirectly operating the sellers on their platform, affecting the free choice of consumers, selling goods close to expiration etc. 
• For e.g.: Flipkart and Amazon India are being investigated by the Competition Commission of India (CCI) for alleged abuse of market dominance and giving preferential treatment to sellers in which they hold indirect stakes. The CCI probe also focuses on deep-discounting practices undertaken by e-commerce marketplaces, which has led to complaints from offline retailers. 

What are the key changes that have been proposed? 

According to the new provisions,  

• Registration mandatory: E-commerce companies would need to register with the Department of Promotion for Industry and Internal Trade (DPIIT).  
• Sharing of information:  E-commerce companies would also have to share information with the “Government agency, which is lawfully authorized for investigative or protective or cyber security activities, for the purposes of verification of identity, or for the prevention, detection, investigation, or prosecution, of offences under any law for the time being in force, or for cyber security incidents”. The information sought by the Government agency will have to be produced by the e-commerce company “within 72 hours of the receipt of an order from the said authority”. 
• Appointment of officers for coordination with law enforcement agencies: On the lines of IT intermediary rules, e-commerce companies will need to appoint a grievance officer, a chief compliance officer, and a nodal contact person “for 24×7 coordination with law enforcement agencies”.  

• Resident grievance officer must be a company employee and a citizen of India and serve as the nodal point of contact for law enforcement agencies. 

• Disallowing specific flash sales: The Government has called for disallowing “specific flash sales” on e-commerce platforms. 

• What is a flash sale? – A “flash sale” is defined as a sale organized by an e-commerce entity at significantly reduced prices, high discounts or any other such promotions or attractive offers for a predetermined period of time 
• Why this norm? – This has been proposed to make the existing e-commerce norms more stringent, by ensuring that these firms do not use data collected through their business for “unfair advantage” and prevent any possible links they may have with traders selling goods and services on their platforms.  
• Note: Conventional e-commerce flash sales are not banned. Only specific flash sales or back-to-back sales which limit customer choice, increase prices, and prevents a level playing field are not allowed. 

• Push for domestic goods: E-commerce firms should mention the name and details of any importer from whom it has purchased such goods or services.  

• These firms will also have to provide alternative suggestions to customers before they make a purchase “to ensure fair opportunity for domestic goods”. 
• They will not only have to rank goods, but also have to come up with a framework such that the ranking does not discriminate against domestic goods and sellers. 

• Data not to be misused: E-tailers cannot mislead consumers by manipulating search results on their platforms.  

• They will have to ensure that marketplaces do not use any information collected through its platform for unfair advantage of its associated enterprises.  

• Selling goods & services to sellers not allowed: No marketplace e-commerce entity shall sell goods or services to any person who is registered as a seller on its platform. 
• Cross-selling details to be revealed: E-tailers engaged in cross-selling of goods or services will have to disclose to its users, by providing the name of the entity providing data for cross-selling, as well as the data used for cross-selling on the platform.  

• Cross-selling is a marketing practice of selling complementary products to customers, thereby getting them to purchase more.  
• Selling products to a consumer by “deliberate misrepresentation” of information about the goods is also not allowed. 

• No differentiated treatment by logistics providers: No logistics service provider of a marketplace e-commerce entity shall provide differentiated treatment between sellers of the same category.  

• Amazon India, for example, has its own logistics arm, and the provision seems to be aimed at ensuring such logistics providers are not given preference over others. 

• Final liability on the marketplace: In the event a seller fails to deliver a good or service, the final liability will fall on the e-commerce marketplace. 

What is the applicability of the rules? 

• The rules will be applicable for all goods and services bought or sold over digital or electronic networks, including digital products.  
• They are valid for all models of e-commerce, including marketplace and inventory models, including multi-channel single brand retailers and single brand retailers. 

What are some concerns being expressed? 

The fact that online marketplaces will now have to offer alternatives to imported goods goes against the basic rules of ‘free market’ and ‘non-discrimination’ of sellers, which are expected to be followed by e-commerce firms. Product suggestions depend on the consumer’s preference and the goods they have frequently bought in the past. 

Source 1: Indian Express 

Source 2: Business Standard 

Source 3: Livemint