See: Why e-merchants are unhappy with India’s new draft e-commerce rules


What are the main points to remember from the draft rules?

First, the new draft rules have not been released by the Ministry of Trade and Industry. With the Consumer Department releasing the draft and “explaining” that the proposed rules deal with “unfair” business practices that harm customers, may be an attempt to give this intervention a softer face. That is, the Interim Rules appear not to be the product of an online and offline battle.

Second, unlike the latest set of e-commerce rules issued by the Ministry of Commerce, this draft does not distinguish between foreign and domestic e-commerce. So new rules, if adopted, will apply to Amazon and Flipkart as well as the e-commerce businesses of Reliance and Tata, for example.

What are the biggest confusions?

First of all, flash sales. On Monday evening, the GoI clarified that flash sales were not banned, as stated in the notification. He said “conventional” flash sales will be allowed. The clarification states that “only specific flash sales or back-to-back sales that limit customer choice, raise prices and prevent a level playing field are not allowed.”

However, that still doesn’t answer what the new rule means. E-commerce players do not know what a “classic” flash sale entails. If a phone maker wants to liquidate their inventory and advertises a flash sale on an ecommerce platform, say two hour sale, 30% discount, is that a ‘conventional’ flash sale? or a problematic sale? If the latter is implemented, how will it be determined? There are no clear answers at this point.

On Tuesday, GoI said e-commerce companies would not have to “disclose” flash sale data and discounts that “benefit” consumers will not be prohibited. But this measure will be taken on the basis of consumer complaints. This still leaves the scope of potential government action unclear.

Second, the draft rules stipulated that no related party or associated company should be listed as a seller in the markets. This is confusing, as an earlier set of rules released by the Commerce Department forced companies like Amazon to reduce their stake in what they called Preferred Sellers to 24%. This was done to provide a level playing field for sellers, GoI said.

Do the new rules mean that any participation of ecommerce companies in a seller is now prohibited? Or are there other definitions of being related parties? If new rules mean absolutely no relationship between an ecommerce business and a seller, it can require a huge and disruptive restructuring.

What else is disrupting e-commerce players?

One proposed rule in particular: the one on fallback liability which makes the e-commerce market responsible for the activities of sellers on many accounts.

The iIndustry argues that all other rules require that they remain a marketplace i.e. an online site that hosts many sellers but does not sell itself and does not have a close relationship with a seller, but that the liability rule is contrary to what the markets should be held accountable for.

Basically, e-commerce companies will be held accountable as if they are sellers themselves. To take an example of the brick and mortar space, this is almost like holding a market accountable for any fault of a store in that market.

Why has so much attention on e-commerce become really important?

No, this is not the case. A recent report by Statista, mapping the Indian e-commerce market, said that before the pandemic, the share of e-commerce in retail was 3.6%, but during the peak period of the pandemic it was rose to almost 10% and has now stabilized at 5%. Compare that to the US market, which had an 11% e-commerce penetration before Covid-19, which rose to 22% during the months when the pandemic was quite severe and has now stabilized at 17%.

So why are there so many rules about an industry that only has a 5% market share?

At least in part, this is due to strong lobbying by the mainstream retailer, which complained that e-commerce was taking their business away from them through “unfair” means. It will be interesting to see how these arguments develop after the domestic e-commerce players, Reliance and Tata, step up their operations and start competing vigorously with Flipkart and Amazon.

Are Amazon and Flipkart subject to other forms of control?

Yes they are. The Indian Competition Commission wants to conduct antitrust investigations into the business practices of Amazon and Flipkart. This battle is in court at the moment.

This story originally appeared in The Times of India on June 23.


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