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India’s proposed e-commerce rules face objections from within the government: Report

Several provisions of the draft rules including its ban on flash sales ran into internal government dissent.

India’s proposed amendments to the e-commerce rules are facing objections from within the government, Reuters reported on September 21 citing several memos.

The amendments were proposed in June in response to repeated antitrust complaints against e-commerce giants Amazon and Flipkart and they give the existing Consumer Protection (E-Commerce) Rules, 2020 more teeth. The changes include new rules to limit who can sell on marketplace platforms, the establishment of a grievance redressal mechanism, new display and labelling criteria for foreign goods, the prohibition of flash sales, restrictions on promotions, fall-back liability, among other things. The government is currently reviewing the feedback submitted by various stakeholders.

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

Objections by the finance ministry

The finance ministry had a dozen objections including that the rules are excessive and would hurt job creation and tax revenue.

“The proposed amendments are likely to have significant implications/restrictions on a sunrise sector and ‘ease of doing business.’ Care needs to be taken to ensure that the proposed measures remain ‘light-touch regulations’,” said a memo according to Reuters.

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The ministry also objected to placing liability of sellers’ mistakes on e-commerce platforms saying that this would be a “huge dampener” and will force companies “to revisit their basic business models.”

The ban on flash sales was also objected to by the ministry. “This is a normal trade practice. The proposed restriction … seems without economic rationale,” the ministry wrote according to Reuters.

Objections by NITI Aayog

In July, NITI Aayog’s vice chairman, Rajiv Kumar, wrote to commerce minister Piyush Goyal saying that rules could hit small businesses, the report stated. “Moreover, they send the message of unpredictability and inconsistency in our policy-making,” Kumar wrote.

Separately, last month, the government think-tank raised several objections to the Ministry of Consumer Affairs proposing amendments to the e-commerce rules stating that several provisions didn’t fall under the jurisdiction of the ministry and should be reconsidered. NITI Aayog said that the rules venture into areas that are already under the purview of the Department for Promotion of Industry and Internal Trade (DPIIT) and the Ministry of Electronics & Information Technology (MeitY) and contains provisions that are at odds with existing rules, such as DPIIT’s policy for foreign funding.

Objections by the corporate affairs ministry

According to a memo seen by Reuters, the corporate affairs ministry in July objected to the rule that says e-commerce firms should not abuse their dominant position in India. The ministry found this provision to be “unnecessary and superfluous” and said that this specific subject is under the purview of the Competition Commission of India. “It is undesirable to introduce a mini-competition law regime in the consumer” rules, the memo read.

Will the consumer affairs ministry back down?

The consumer affairs ministry, which framed the proposed rules, has not indicated what the final version of the rules will look like.

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Piyush Goyal, minister of consumer affairs, has been vocal about his disdain for large e-commerce platforms. When the Supreme Court refused to stop a probe by the Competition Commission of India into Amazon and Flipkart he welcomed the decision saying “These companies tried even with their legal tricks to halt the investigation against them but it’s with extreme pleasure that I inform you that on the anniversary of Quit India Movement, Supreme Court has quashed their plea.”

“Big companies wield a lot of power owing to large amounts of money with them, they are trying their best to maintain their free will in the e-commerce market. To hurt our small business and traders. And after a while, it causes harm to our consumers in the long term,” Goyal, said when speaking in the parliament last month. “With their dominance, these entities are wiping out small shops which is not only a concern in India but across the world,” he added.

Last month, Nidhi Khare, additional secretary in the consumer affairs ministry, said that all provisions, including the definition of “related party” will be examined properly before finalising the rules, the Economic Times reported.

Unintended consequences of the new e-commerce rules

Earlier this month, Tata Digital put the launch of its super app on hold until there is more clarity on the proposed e-commerce rules. The rules will classify Tata super app as an e-commerce marketplace and will prevent Tata-owned brands like Trent or Vistara from selling on the super app. This appears to be the first unintended consequence of the proposed e-commerce rules, which were primarily targeted at Amazon and Walmart-owned Flipkart. Like Tata, other Indian companies are likely to be impacted as well. Reliance and Adani, for example, will have to restructure their super app plans as well if the proposed rules are implemented as they are.

MEDIANAMA’s Take: This is what happens when government policies are squarely focused on one or two targets – in this case, Amazon and Flipkart – without taking into account the unintended consequences of the impact on the rest of the space. We’ve seen this play out before – in case of, for example, tax on online advertising about a decade ago, which was meant to target Google, and led to an unlevel playing field between online and offine advertising, because offline newspaper advertising was tax exempt. This contributed to the demise of many a small advertising network, and only ended up furthering the dominance of Google in the space. When will our babus learn that increase in regulation typically ends up favouring the larger incumbent players.

Also Read (feedbacks submitted by stakeholders)

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