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Proposed changes to e-commerce rules: Pros and cons of flash sales

Banning flash sales could benefit small businesses


Part of the government's proposed amendments to the Consumer Protection (E-Commerce) Rules, 2021, was a call for public comments on banning fraudulent flash sales and mis-selling of goods and services on e-commerce platforms.

The idea has since sparked much debate. Some experts feel that it would make the e-commerce landscape more transparent, noting that flash sales pressurise small brick and mortar retailers who must compete with the sales by e-commerce platforms, given how customers are instantly attracted towards them. There are also views that the intricate operating structures created by big e-commerce players, which allowed them to circumvent restrictions on inventory control, may continue despite the new amendments.

“Though the proposed changes say that conventional flash sales by third-party sellers are not being targeted, there is a lot of grey area because of the intricate operating structures created by big e-commerce players which enable them to circumvent restrictions on inventory control by them. Even if the proposed changes come into effect, unless there is clarification on this grey area, the intended fair and level playing field will remain elusive,” observes Akshay Hegde, Co-founder and MD of ShakeDeal. 

Experts agree that flash sales are not a regular phenomenon but are primarily conducted in a situation where the seller is challenged by his weak cash flow and seeks to clear off his inventory. In some cases, these sales are of perishable items and can induce buyers to buy and clear inventory before the product expires.

“As the name suggests, flash sales are not endemic and hence any such event will most likely have a localised or a limited temporal response. Given the small footprints that flash sales have in the larger scheme of things, it is puzzling as to why the government should interfere in the marginal activity of the e-commerce industry. On the contrary, the government's directive might hurt consumer welfare as well as the liquidity situation with the e-commerce players,” pointed out Alok Shende, of Mumbai-based Ascentius Consulting.

Some market analysts say flash sales help in that they bring in a sudden surge in demand and economic activity. This wya, they are good for e-commerce businesses, consumers and manufacturers. “Though flash sales are good for the e-commerce players, they create pressure on small retailers who are already struggling due to the sharp decline in footfalls in their stores and the power of large online sellers to run deep discounts. The government has been receiving many representations from the community of small retailers and is possibly concerned about the ecosystem of small retailers; hence is trying to regulate the market. It is like the stock exchanges halting their activities when a stock is traded intensely,” observed Aditya Narayan Mishra, Director and CEO of CIEL HR Services.

Few market observers also feel that flash sales can impact a level playing field for a platform seller or limit choices for a consumer. At the same time, impulsive buying given an attractive price or limited period availability can disrupt purchase trends of consumers leading to market dominance. 

“Though these are theoretical possibilities, in a growing market like India, consumers have enjoyed the positive side of flash sales and the enormous supply chain power wielded by e-commerce platforms. Covid lockdowns have made this trend a disadvantage for sellers as they had no option but to depend on online sales only and hence have felt discrimination harder, stressing the need for a protective measure. Once the economy returns to normalcy, the pressure would ease and consumers would remain king in an emerging economy,” Subramanyam Sreenivasaiah, CEO of Ascent HR, told THE WEEK.

Though the draft of the Consumer Protection (E-Commerce) Rules, 2020 is not final yet and the fine print is still awaited, CAIT (Confederation of All India Traders) has welcomed the move. It feels that the draft will leave no scope for e-commerce companies to play with the rules in any manner which they were doing for the last many years. “The rules when implemented will certainly purify the highly vitiated e-commerce business of India due to unethical and illogical business practices of foreign-funded e-commerce companies. With the implementation of these rules now even a small trader in the country will be able to adopt e-commerce as an additional business. We expect that now everyone will fall in line to comply with the rules and the e-commerce business in India will grow leaps and bounds,” remarked Praveen Khandelwal, the Secretary-General of CAIT. 


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