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IT for Change calls for lesser burden on smaller players and prevention of regulatory overlap in proposed e-commerce rules

IT for Change recommended that the new rules differentiate between entities, clarify flash sales ban, and bring in new provisions on government access to consumer data. 

“The fact that certain platforms have been able to amass disproportionate market power, and the absence of a level playing field in the e-commerce domain is a consumer welfare concern at its core,” IT for Change said while making recommendations to the proposed amendments to E-Commerce Rules.

Background: The government on June 21 proposed amendments that give the existing Consumer Protection (E-Commerce) Rules, 2020 more teeth. The changes include new rules to address abuse of FDI regulations, the establishment of a grievance redressal mechanism, new display and labeling criteria for foreign goods, the prohibition of flash sales, restrictions on promotions, fall-back liability, among other things.

Read: Summary of the proposed amendments to E-Commerce Rules, 2020

Why it matters? While many stakeholders have submitted feedback on the proposed rules, IT for Change’s submission has brought up some important concerns such as onerous responsibilities on small players, regulatory overlap, and who owns the data aggregated by e-commerce entities.

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What are the recommendations made by IT for Change?

Adopt a differentiated rather than blanket approach: IT for Change submitted that the proposed amendments apply horizontally and uniformly across all e-commerce entities without any distinction between dominant marketplace entities and smaller start-ups operating inventory-based e-commerce. “Such a blanket approach is likely to prove to be onerous and cumbersome for smaller e-commerce companies and start-ups with limited revenue and small employee bases,” the organisation stated while making the following suggestions:

  • Different obligations for different types of entities: Make a clear distinction between the obligations for marketplace e-commerce entities and inventory-based e-commerce entities.
  • Thresholds based on size: Set thresholds for transparency and accountability obligations within each category on the basis of factors like user base, market capitalization, etc.
  • Targetted legislation: “Targeted legislation to tackle specific challenges for transparency and accountability arising from dominant marketplace e-commerce entities may be essential,” IT for Change stated, giving the example of how EU’s proposed Digital Markets Act defines and targets “gatekeeper platforms.”

Address regulatory overlap: IT for Change submitted that some of the provisions of the proposed amendments such as the ban on the sale of private labels and the prevention of abuse of dominant position by an e-commerce entity fall under the jurisdiction of the Competition Commission of India (CCI) and there will be confusion as to whether the CCI or the Consumer Protection Authority (CPA) will examine any dispute pertaining to these provisions. Another example provided is the provision requiring e-commerce entities to obtain consent from consumers for the disclosure of their personal information to third parties, which falls under the purview of the Information Technology Act, 2000 and the proposed Personal Data Protection Bill. To address these overlaps, IT for Change proposed the following suggestions:

  • Single authority for adjudicating competition law and consumer protection disputes: In the short term a robust mechanism of cooperation can be adopted between CCI and CPA to prevent regulatory overlap, but in the long run India should institute a single authority for adjudicating competition law and consumer protection disputes similar to countries like the UK, Ireland, and Finland.
  • Consumer protection legislation needs to operate along with competition law: IT for Change submitted that “all aspects of consumer welfare cannot be remedied through consumer protection rules” and that these rules need “to operate in lockstep with competition law towards the creation of a level playing field for e-commerce entities.” The organisation called for the parallel implementation of regulation to specifically curb monopolistic tendencies in the digital marketplace such as the European Commission’s proposed Digital Markets Act.
  • Modify rules pertaining to customer information: Rule 5(14)(e) should be modified to state that the personal information of consumers can only be shared with the consent of such consumer, “obtained in accordance with the provisions of the Information Technology Act, 2000, and other relevant legislation on personal data protection as may be applicable.”
  • Rules are in addition to others laws: A new rule stating that the provisions of these Rules “shall be in addition to, and not in derogation of any other law.”

Rights to access data: Rule 5(18) of the proposed rules allows the government access to any data held by an e-commerce entity for various purposes. IT for Change submitted that this “provision fails to meet the standards of legality, necessity, and proportionality recognized by the Supreme Court in the Puttaswamy judgment” because it grants “extensive powers to government bodies to demand data from e-commerce entities without any judicial oversight or other checks and balances.” But the organisation also pointed out that the Draft National E-commerce Policy 2019 observed that e-commerce entities do not have any de facto ownership rights over transactions data and consumer information. In light of these views, IT for Change suggested that:

  • Deletion of current provision: Rule 5(18) of the proposed amendments be deleted.
  • New rules regarding data access: Draft rules are amended or supporting legislation enacted to give
    • investigatory agencies and regulatory authorities rightful access to consumer data as long as such requests satisfy principles of lawfulness, legitimacy, necessity, and proportionality.
    • individual consumers and third-party sellers the right to data access in relation to their individual transactions
    • data cooperatives and other altruistic data organisations that are spearheading data stewardship models access to raw, non-personal data resources aggregated by e-commerce entities.

Provide clarification on flash sales ban: The proposed amendments define flash sales as follows:

“A sale organised by an e-commerce entity at significantly reduced prices, high discounts or any other such promotions or attractive offers for a predetermined period of time on selective goods and services or otherwise with an intent to draw large number of consumers. Provided such sales are organised by fraudulently intercepting the ordinary course of business using technological means with an intent to enable only a specified seller or group of sellers managed by such entity to sell goods or services on its platform.”

The Ministry of Consumer Affairs later clarified that conventional flash sales by third-party sellers are not banned, but IT for Change pointed out that “without a definition of what constitutes ‘conventional flash sales’ and providing the distinctions between ‘conventional’ and ‘fraudulent’ flash sales, the rules and the clarification compound regulatory uncertainty.” The organisation submitted that

  • Clarification in intent: An explicit clarification is required about the regulatory intent of the flash sale ban and if the intent is to ban predatory pricing tactics, then a different rule needs to be made, referring to para 5.2.15.2.4 (ix) of the Consolidated FDI Policy Circular of 2020, which states that entities should not directly or indirectly influence the sale price of goods or services.
  • Clarification to flash sale definition: If the intent is something else, then the definition of flash sale should be modified to provide more clarity.

Transparency of ranking algorithms: IT for Change submitted that e-commerce entities “have been known to engage in algorithmic tactics that misrepresent supply and demand of goods and services, and adopt nudging practices that manipulate consumer choices.” In order to address this, the organisation proposed that Rule 6(3)(f) be amended to the following:

  • Amendment to increase transparency: “[Every marketplace e-commerce entity shall] ensure transparency, individually and collectively, about the processes that are used to determine the ranking of goods or sellers on its platform through an easily and publicly available description drafted in plain and intelligible language. This includes, but is not limited to, an explanation about the functioning of the product search and ranking algorithm and its various parameters.”

Also Read (feedbacks submitted by other stakeholders)

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