Meddling too much with e-commerce

The Hindu Business Line | July 03, 2021

Banning certain types of sales by e-comm players and creating overlapping jurisdictions will slow a segment that must expand

One of the perils of oversized governance, as in India, is a multiplicity of laws, which often results in inefficiencies in the economy. A recent case of regulatory overhang is the e-commerce sector, which comprises only 3-4 per cent of retail in India. Yet, the government is attempting to discipline it through multiple laws administered by different regulators while sparing the larger offline retail segment.

In addition to the massive compliance burden imposed on the market players, some overlapping provisions of laws also cause legislative ambiguity and lead to forum shopping by complainants, causing a heavy legislative burden on them.

It seems rather astounding that amid a pandemic and with the third wave impending, instead of promoting e-commerce, the government is burdening the sector with new, restrictive rules. This will have a huge bearing on the consumer.

Recently, the government amended the e-commerce rules under the Consumer Protection Act (CPA), 2019 and invited public comment. The objective is to bring transparency in the e-commerce platforms and further strengthen the regulatory regime to curb the perceived unfair trade practices by ensuring that domestic manufacturers and suppliers get a fair and equal treatment on e-commerce platforms, which, as a principle, is laudable.

However, the CPA provides for protection of the interests of consumers. According to Section 2(7) of the Act, a consumer is any person who buys goods or avails himself of any service for a consideration and includes any user except for the person who has availed such services or goods for the purpose of resale or commercial use.

With these amendments to protect the sellers on e-commerce platforms, the government is attempting to over-reach the mandate of the CPA and cause legislative ambiguity in the presence of a separate regulator for unfair trade practices, the Competition Commission of India (CCI).

In some countries, such as Australia, consumer protection and competition laws are enforced by a single authority, while in India these are enforced by different forums.

Unfair trade practice

In this regard, the proposed e-commerce rules under the CPA to prevent unfair trade practices are unwarranted.

It must also be noted that unfair trade practices refer to the fraudulent or deceptive conduct of the market players for business gains and warrant ex-post intervention if such a conduct takes place. Ex-ante regulations to prevent a possible unfair trade practice would apply to all the market players, including the ones that do not intend to indulge in any such activity and increase their compliance burden.

The rules such as banning of certain types of sales by e-commerce players to prevent unfair trade practices are arbitrary and are a step towards a restrictive economy, which is likely to cause economic inefficiencies and impede economic growth.

The CCI performs case by case analysis to assess if these practices cause an adverse effect on competition in the market and must continue to do so in that manner. This is also in line with global best practices.

These rules are cumbersome as well as undesirable as intuitively, the cost of enforcing them outweighs the benefits and create overlapping jurisdictions as such concerns are already covered under another law. It appears that the consumer protection law is being stretched to target e-commerce players.

Legislative ambiguity exhibits regulatory incoherence among several regulators attempting to regulate one sector, e-commerce in this case. There are several other laws in the making, such as the Personal Data Protection law which would have a bearing on the growth and development of e-commerce.

Thus, there is a need to establish clearly defined jurisdictions between all the regulators so that no overlapping or conflicting rules are enforced by multiple regulators.

Sectoral regulator

The government could consider setting up a sectoral regulator for e-commerce to avoid the increasing complexities of the regulatory regime. This has been in discussions for a while; however, the suggestion has been to have one similar to TRAI. Considering the highly regulated, not so well functioning telecom sector in India, that reference is far from ideal.

The government must limit its intervention in the markets to addressing market failures, regulating unfair trade practices and protecting consumer interest through the regulators.

The proposed e-commerce rules attempt to micromanage the operations of market players, which will stymie the growth of e-commerce, a sunrise sector, in the country at a time when the need is to rapidly expand it to Tier-III/IV towns, generating millions of jobs and providing access to MSMEs to national and international markets by on-boarding them on e-commerce supply chains.

Mayaram is a former Finance Secretary and chairman, CUTS Institute for Regulation & Competition. Sodhi is a Senior Fellow, CUTS Institute.

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