The growing concerns surrounding the regulation of e-commerce giants have been a source of debate among Indian policymakers for a few years. Despite efforts to draft a concrete e-commerce policy, a consensus remains elusive both within the country and globally (in WTO). A draft e-commerce policy was first proposed in 2018 and then in 2019, but the sector has changed manifold since then. A new draft must also be in harmony with the ongoing parallel discussion of proposed amendments/revisions in the Consumer Protection (e-commerce) Rules 2020.
As India grapples with shaping e-commerce regulations, several challenges demand careful consideration to balance promoting fair competition, protecting consumer interests and inviting long-term capital. Proposed amendments of June 2021 by the Department of Consumer Affairs aimed to address concerns raised by domestic brick-and-mortar retailers about anti-competitive practices, deep discounts, and predatory pricing by e-commerce entities. Small sellers on these platforms also have voiced complaints, alleging preferential treatment given to associate-sellers of the platforms. Many e-commerce entities have opposed the proposed amendments.
Analysing deep discounts
In the proposed Consumer Protection (E-Commerce) Rules, the contentious provision that would restrict market-distorting deep discounts has garnered significant attention. While the intention may be to protect traditional brick-and-mortar retailers, it’s crucial to reassess its impact on consumers and small businesses.
Guarding against anti-dumping practices is important (by using anti-dumping duties to safeguard domestic manufacturing), but curbing “fair” discounts will stifle the competitive spirit of the market. Healthy competition ensures quality goods at affordable prices, particularly in retail, which ultimately benefits consumers.
Moreover, many e-commerce sellers are SMEs and small-scale businesses that rely on these platforms to reach a wider audience and enhance their market scope. Emphasising competitive advantage for e-commerce players benefits these small players, enabling better revenue prospects and improving export competitiveness. Restricting discounts could impede the government's efforts to promote local sellers and MSMEs, hampering their digital accessibility and growth.
Contrary to the misconception that e-commerce discounts are killing retail in India, only about 15 per cent of the population consume/buy goods through digital markets, according to a Deloitte India report this year. Instead of restrictive policies, promoting adherence to fair pricing mechanisms and quality standards would help. Additionally, competition-related issues should involve a thorough consultative process with market regulators like the CCI to ensure well-balanced policies. International examples of deep discounting laws like in the EU and Australia can also be looked at, which are market-agnostic and not specifically targeted towards e-commerce or digital markets.
The related parties conundrum
The ongoing discussions also speak of a clause directing an outright ban on the related parties, which had seen only a “considerable” restriction in the 2021 draft. “Related Parties” under the Companies Act 2013 includes any company which is— (A) a holding, subsidiary, or an associate company of such company; or (B) a subsidiary of a holding company to which it is also a subsidiary.
If logistics tie-ups or logistics operations acting as a subsidiary of the parent e-commerce company is perceived as a related party under the parameter of a possible ban that can potentially dry out the efficient logistics and supply chain operations of the e-commerce entities. The most crucial aspect of any e-commerce operation is the prompt delivery of goods with reliable tracking features and quick and easy returns. Such in-house logistics operations have also helped further last-mile delivery of goods and products. These positive aspects can become limited if e-commerce platforms withdraw control of the supply chain logistics operations. This will not just disrupt the ongoing cycle of timely deliveries but harm consumer interests as well.
Approach to regulations
According to the Centre for Monitoring Indian Economy (CMIE), the total value of new private sector investment proposals in 2022 saw a rise. That said, the number of proposals has been relatively small. This could mean businesses have resources to invest but are now more focused and selective about investments. Moreover, private investments as a percentage of GDP have declined in the last few years. The underlying issue can be how the companies have been monitored amid the tightened regulatory environment.
Ensuring consumer protection is undeniably a crucial responsibility of the government, and any measures aimed at safeguarding consumers would undoubtedly garner industry support. However, there is a growing concern that some of the proposed changes in e-commerce regulations may be overly restrictive and extend beyond consumer protection. If these regulations aim to “check the influence” of global players, a more transparent approach would be to consider relooking at Foreign Direct Investment (FDI) in the sector.
Finally, the government must exercise caution to avoid excessive interference in the market. While establishing regulatory frameworks is crucial for ensuring fair competition and consumer protection, it should be primarily reserved for times of crisis. As the government pushes its might in the market through initiatives like the Open Network for Digital Commerce (ONDC), potential conflicts of interest must also be addressed to ensure a level playing field and foster healthy private-sector competition.
Embracing fair competition and fairness for all investors while protecting consumer interests through effective dispute resolution and awareness-building measures can pave the way for a thriving digital economy in India.
Dr Srinath Sridharan is an author, policy researcher and corporate adviser
The opinions expressed in this article are those of the author's and do not purport to reflect the opinions or views of THE WEEK.