India's digital economy has experienced remarkable growth, transforming the responsibilities of platforms and intermediaries. While e-commerce platforms have made strides in focusing on consumer protection and safety, aligning government-based rules with these efforts is critical. In July 2020, the Consumer Protection (E-Commerce) Rules, 2020 were notified to specify duties and liabilities of e-commerce entities and sellers on their platforms. The ongoing proposal for revision to these Rules and a separate E-Commerce Policy must be carefully crafted to avoid unintended consequences and uphold the government's broader policy goals.
The Indian digital market has been witnessing a significant increase in consumption with the online shopper base expected to reach about 400-450 million users by 2027. Hence, striking a balance between safeguarding consumers and promoting market growth becomes paramount. The valuation of India’s e-commerce market is also projected to hit the US$ 350 billion mark by 2030, serving as a significant contributor to India's goal of a $1 trillion digital economy. However, certain speculative clauses in the proposed regulations may hinder sector acceleration, discourage investments, and impede the growth of small businesses. Additionally, these clauses could impact digital and financial inclusion, which are essential priorities for the Government.
Liability, not a fallback
One contentious issue is the concept of fallback liability, which holds e-commerce platforms accountable for defective or counterfeit products sold by sellers on their platforms. While the 2021 proposed amendments to the consumer protection (e-commerce) rules introduced the fallback liability clause, the amendments were later withdrawn due to criticism. Reintroducing such a provision could lead to complexities, particularly when considering the Indian market’s preference for a marketplace-only model over an inventory-based one.
Instead of imposing a blanket fallback liability on marketplace e-commerce entities, a more pragmatic approach could involve scrapping or limiting the extent of such liability. For instance, ensuring timely refunds to consumers in case of non-delivery could be a reasonable compromise. A stringent checklist of dos and don'ts for onboarding sellers could serve as a pre-emptive measure to enhance consumer protection. Moreover, e-commerce players can be asked to incentivise fair and transparent sellers, fostering a more responsible ecosystem.
Drawing inspiration from international examples, like the Shop Safe Act 2021 in the USA, a balanced approach should be defined for Indian regulations. The Shop Safe Act established contributory trademark liability for online marketplaces based on the sale of counterfeit products by third-party sellers on their platforms. While the legislation faced severe backlash, primarily from the industry, there was a provision that platforms would not be held liable if they could demonstrate that they took all preventive measures enumerated in the Act. Such balanced approaches must be clearly defined for the Indian-based rules.
India can implement definitive mechanism wherein the sellers, the platforms and the brands have proportional obligations without placing the onus on any one party. Such a mechanism would foster cooperation and shared responsibility, benefiting all stakeholders involved. But then, this has to be seen in light of to-be-enhanced judicial reforms to ensure speedy consumer grievance resolution. Else the consumer grievances will only pile up.
Payment options should be equitable, not equal
Another critical aspect is the need to create a level playing field for payment mechanisms adopted by e-commerce players. While the Government’s intent to promote smooth digital transactions is commendable, it is essential to recognise that not all financial or FinTech players possess the infrastructure to process payments promptly.
This also goes against the objectives of government’s own Digital India story, which is to achieve “Faceless, Paperless, Cashless” status. An equitable approach involves mandating a level playing field only after fintech or banking entities demonstrate certain infrastructural quality standards. This ensures fairness and encourages progress without demotivating the market, and safety in those payment transactions succeeding. Moreover, collaboration between e-commerce players and financial institutions facilitates revenue generation, allowing platforms to focus on innovation and platform upgrades. The recent report on “Cyber Security and Rising Incidence of Cyber Crimes” by the Parliamentary Standing Committee on Finance is a scathing reminder on the necessity of digital markets adopting requisite financial payment models. The proposed level playing field might dilute such a critical recommendation.
Consumer protection & restrictive policies
To effectively protect consumers and foster innovation in India's e-commerce sector, the proposed rules must prioritise definitional clarity. By eliminating redundant compliances and acknowledging that e-commerce operates at the intersection of digital and physical realms, the regulations can strike a balance between safeguarding consumers and encouraging growth. Understanding the changing social and cultural norms and considering the buyer demographic, primarily the 18-34 age group, is crucial while drafting e-commerce rules. They are the future consumers for the sellers. To ensure ease of usage, fairness in transactions, and time-bound redressals of any complaints, policies have to create a fair field.
Strengthening and making Online Dispute Resolution (ODR) mechanisms compulsory will enable consumers to seek timely and effective resolutions, ensuring better grievance redressal. Additionally, enhancing consumer awareness and literacy will play a pivotal role in empowering consumers to make informed choices.
If the regulations are seen as anti-global platforms, the market could push investors away from other industries too. In a year running upto national elections, this tight rope walk is needed to showcase fairness and equity of e-commerce play for long term sustainable consumption growth. Only by adopting a balanced approach and considering the challenges posed by fallback liability and preferential payment methods, India can continue on its path to becoming a digital powerhouse while safeguarding the interests of consumers and promoting a thriving digital ecosystem.
Dr. Srinath Sridharan is an author, policy researcher, and corporate adviser