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E-commerce consumer protection rules may drop contentious clauses on deep discounts, flash sales

The consumer affairs ministry may drop contentious provisions that prohibit deep discounts and flash sales in the revised version of e-commerce rules that it plans to release soon.

Such provisions would be dealt with in the revised e-commerce policy that the Department of Promotion of Industry and Internal Trade is preparing.

The prohibition of deep discounts and flash sales on online platforms, which were included in the June draft of e-commerce consumer protection rules, had been vehemently opposed by e-commerce entities and Union government arms.

“The revised drafts of both the e-commerce consumer rules and the e-commerce policy are currently being drawn up. The draft rules may be released first and it will be based on an already established legislation,” a senior official said.

The revised policy and rules are expected to significantly impact India’s e-commerce market, which is poised to rise to $111.4 billion by 2025, up from $46.2 billion in 2020, on the back of wider internet availability and smartphone ownership, according to India Brand Equity Foundation, a trust established by the Department of Commerce.

Less stringent
The Consumer Protection (E-Commerce) Rules, 2020, first came into force in July 2020. The consumer affairs ministry floated a revised draft of the rules in June 2021, intending to tighten the watch on e-commerce companies.

The draft proposed to make e-commerce marketplaces responsible for the quality of goods sold on their platforms, set up robust grievance redressal mechanisms and stop offering market-distorting discounts, among other things.

According to the draft, an e-commerce entity cannot “manipulate the price of the goods or services offered on its platform in such a manner as to gain unreasonable profit by imposing on consumers any unjustified price having regard to the prevailing market conditions.” They also banned fraudulent flash sales and the mis-selling of goods and services on e-commerce platforms.

The appointment of chief compliance officer/grievance redressal officer at all e-commerce entities was also suggested.

Despite being flagged many times over the past two years by the government, the rule on deep discounts led to significant opposition by companies, which said this would restrict the way the business operates.

“E-commerce companies have continued to argue that there exists no clear guideline on what constitutes manipulative practices. As a result, they have repeatedly stressed that they could be vulnerable to prosecution even for offering mild discounts,” a senior person with knowledge of the matter said.

However, the rules faced stringent opposition even from government agencies, including Niti Aayog, the public policy think-tank, and the finance and corporate affairs ministries. They pointed out that the norms may be harsher than necessary and could adversely affect the growth of e-commerce in India.

The other contentious point is holding e-commerce companies liable for discrepancies in goods sold on their platforms. Niti Aayog had pointed out that if online marketplaces can’t control the inventory sold on their platforms, they should also not be held responsible for the quality of such products.

Long wait
Meanwhile, officials said the wait for the e-commerce policy is expected to continue for now. While yet another revised draft of the policy was brought out on March 13 following extensive inter-ministerial meetings, little has happened since then.

The last draft had focused on two key issues – market manipulation and deep discounting through algorithms and regulations on foreign direct investment into the sector.

“E-commerce operators must ensure equal treatment of all sellers/vendors registered on their platforms and not adopt algorithms which result in prioritising select vendors/sellers,” it had said.

The draft also stressed that the Centre is concerned about monopolies forming in the sector and the loss of business for small retailers. Domestic retail groups such as the Confederation of All India Traders had demanded that an independent national regulator be instituted to oversee the sector.

They also pitched for the government to have the right to seek information and audit the accounts of e-commerce entities. Meanwhile, FDI also remained a touchy issue.

In 2018, the government came up with Press Note 2, revising the then-existing Press Note 3. It had for the first time asked marketplaces to ensure that they would not sell products of group companies on their platforms. Following the clarification, Amazon rejigged its structure in India to conform with the law, but hasn’t addressed the issue, traders said.

Officials said the long wait for the new policy was on account of having to traverse a wide range of laws and regulations that govern the sector.

“The cross-cutting nature of e-commerce means that several ministries need to be consulted and a single source of legislation made,” an official said. This includes the Income Tax Act, 1961, Foreign Exchange Management Act, 2000, Consumer Protection Act, 2019, and Information Technology Act, 2000. Moneycontrol

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