By Srinath Sridharan
India’s digital economy has experienced remarkable growth, transforming the responsibilities of platforms and intermediaries. The Indian digital market has been witnessing a significant increase in consumption with the online shopper base expected to reach about 400-450 million users by 2027. Its valuation is also projected to hit $350 billion by 2030, contributing to India’s goal of becoming a $1-trillion digital economy. Hence, striking a balance between safeguarding consumers and promoting market growth becomes paramount.
While e-commerce platforms have made strides on consumer choice, protection and safety, aligning market behaviour rules with the ideology of digital and financial inclusion is critical. The much-awaited e-commerce regulations are now at the centre of attention, with their ramifications emcompassing boardrooms and vendors alike. At the heart of the matter lies the distinction between the two predominant e-commerce models operating in India: the inventory-based and the marketplace-based models. The inventory-based approach, adopted by Reliance Retail and some others, involves purchasing goods from sellers and then selling them directly to consumers. On the other hand, the marketplace-based model, exemplified by platforms like Flipkart, serves as an intermediary connecting buyers and sellers. Amazon runs both. Any open-ended or speculative clauses in the proposed regulations may hinder the sector’s acceleration, discourage investments, and impede small businesses.
An area of contention revolves around fallback liability, which holds e-commerce platforms responsible for faulty or counterfeit products sold by vendors on their platforms. The proposed 2021 amendments to the consumer protection (e-commerce) rules initially included this provision but faced backlash and were subsequently withdrawn. Reintroducing such a measure could complicate matters, especially given India’s inclination toward a marketplace-focused model. A more practical approach could involve either removing or limiting the scope of this liability. For instance, guaranteeing prompt refunds to customers in cases of non-delivery might represent a reasonable path. The implementation of a stringent checklist for vetting sellers could proactively bolster consumer protection. Additionally, e-commerce players might be encouraged to reward ethical and transparent sellers, thereby cultivating a more accountable ecosystem.
The Open Network for Digital Commerce (ONDC) emerges as an intriguing aspect in this narrative. If ONDC is granted exemption from fallback liability, the demand for a level playing field for other intermediaries becomes legitimate. Ensuring consistent treatment across the spectrum not only promotes fairness but also prevents fragmentation within the e-commerce landscape.
One way to do this is to establish a definitive framework where sellers, platforms, and brands share proportional responsibilities, thereby avoiding undue burden on any single entity. This approach would encourage collaboration and collective accountability. To effectively safeguard consumers and promote innovation within India’s e-commerce sphere, the proposed regulations should emphasise clear definitions. By streamlining unnecessary requirements and acknowledging the dual digital and physical nature of e-commerce, these rules can strike a harmonious balance between consumer protection and sector growth. In shaping these regulations, it is crucial to take into account evolving societal norms, cultural dynamics, and the preferences of the primary buyer demographic, particularly the 18-34 age group, as they represent the future consumers for sellers. Compulsory adoption of online dispute resolution (ODR) mechanisms and the usage of available ODR platforms will empower consumers to seek timely and effective solutions.
Within the proposed Consumer Protection (E-Commerce) Rules, the contentious provision aiming to curtail market-distorting deep discounts has captured considerable attention. It is imperative to reevaluate its potential repercussions on consumers and small enterprises. While guarding against detrimental anti-dumping practices remains vital, the restriction on “reasonable” discounts could dampen healthy competition across various markets and brands. Numerous e-commerce vendors comprise of SMEs and small-scale businesses relying on them to broaden their consumer base and amplify market reach. Implementing limits on discounts could also erode the market’s competitive ethos, ultimately disadvantaging consumers. A robust competition landscape ensures the availability of quality goods at affordable prices, especially within the retail realm, ultimately benefiting end-users. Contrary to the misconception that e-commerce discounts are undermining traditional retail in India, only around 14% of the population (based on 2021 numbers) actually engage in purchasing goods through digital platforms.
Rather than adopting restrictive measures, endorsing adherence to equitable pricing mechanisms and stringent quality standards would prove more beneficial. Furthermore, addressing competition-related issues should involve a comprehensive consultative process with market regulators such as the CCI to ensure the formulation of well-balanced policies. International instances of laws addressing deep discounting, as seen in the EU and Australia, could offer insights.
While the government’s intent to promote smooth digital transactions is commendable, it is essential to recognise that not all financial or fintech players possess the infrastructure to process payments promptly, including for e-commerce platforms. An equitable approach involves mandating a level playing field only after fintech or banking entities demonstrate certain infrastructural quality standards. This ensures fairness and encourages progress without demotivating the market, and safety in those payment transactions succeeding. Moreover, collaboration between e-commerce players and financial institutions facilitate revenue generation, allowing platforms to focus on innovation and platform upgrades.
If the e-commerce regulations are seen as being anti-global platforms, the market could push investors away from other industries too. By adopting a balanced approach, India can continue on its path to becoming a digital powerhouse while safeguarding the interests of consumers and promoting a thriving digital ecosystem. The government should tread carefully to prevent overreach. Given the government’s active involvement in the market, exemplified by initiatives like promotion of ONDC, addressing potential conflicts of interest is vital to establish equitable conditions and encourage robust competition within the private sector. Embracing equitable competition, investor fairness, consumer protection through efficient dispute resolution, and awareness initiatives can India’s digital economy flourish. India’s e-commerce sector stands at a crossroads, and the choices made today will sculpt the landscape for years to come.
The writer is policy researcher and corporate advisor
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