Make e-commerce rules less stringent

By: |
August 12, 2021 4:45 AM

Promoting small retailers is the govt’s prerogative, but it can’t happen at the cost of e-commerce companies

The compounded growth in net profits for India Inc, over the five years starting FY17, was 11.6%—with an outstanding 55% jump in FY21.The compounded growth in net profits for India Inc, over the five years starting FY17, was 11.6%—with an outstanding 55% jump in FY21.

One hopes the final rules for e-commerce—drawn up by the consumer affairs ministry—will be a lot more friendly than the conditions contained in the draft. The draft rules are very restrictive and onerous and also leave room for subjectivity and harassment. For instance, widening the universe of related parties to include, inter alia, directors, shareholders with over 10% stake, those with a 5% shareholding in related entities and preventing them from doing a host of things will choke businesses. These related parties, as also Associated Enterprises (AEs), cannot become sellers on the platform and neither can they do anything that an e-commerce entity is not permitted to do.

AEs have been defined widely to include any entity with common shareholders of over 5% or more than 10% ultimate beneficial ownership. These are all-encompassing restrictions, and it would be virtually impossible for business groups to work within them. The definition of an e-commerce entity too has been broadened to include not just the entity operating the platform but also any ‘related party’ or any other enterprise engaged by the platform, for fulfilling orders. One doesn’t see the need to bring so many entities under the regulatory ambit; too much control will strangle entrepreneurship.

Under the 2018 regulations, the sales of private labels were permitted, but these have been tightened now. An e-commerce entity now can’t allow its name or brand for the sale of goods or services on its platform in a way that suggests the product or the service is associated with the marketplace. These conditions are hard to understand; one would have thought enterprises should be given more freedom to do business. Again, the draft rules make the e-commerce entity liable to a fall-back if a seller fails to deliver the goods or services, or does not fulfil its duties as prescribed. Making the platform responsible for the negligence of the seller is unfair; marketplaces can only be liable for the services that they render because they have no control whatsoever on the inventory since they don’t own it. The proposed rules ban flash sales, which have been defined as a sale organised by an e-commerce entity at high discounts, promotions or reduced prices for a pre-determined period on select merchandise wherein only a certain set of sellers, managed by the e-commerce entity, are enabled to sell these products.

It is hard to understand why lower prices, benefitting the consumer, should be disallowed, even if it is a specific set of sellers that is reducing prices. After all, brick-and-mortar chains—multi-brand and single-brand—also have sales all the time and no questions are asked. The proposed changes disallow logistics-providers from differentiating between sellers in the same category. One is not clear why the government would want to micro-manage the operations of players. Such micro-management will only lead to subjective conclusions and create room for harassment.

The $40-billion e-commerce industry (by gross merchandise value) is one that is creating jobs—blue- and white-collar ones—and into which investments are flowing from overseas. Critically, these companies facilitate transactions for thousands of micro and small enterprises and create livelihoods. A level playing field is a must in any sector, and protecting local players is unfair. The government may want to promote small retailers and mom&pop stores—that is its prerogative. But it must not do so at the cost of foreign e-retailers; that would not be in the interests of the consumer.

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