Government to improve consumer protection, crack down on unfair e-commerce practices | Latest News India

New Delhi: The Union government has revived its 20-month-old proposal to protect customers from unfair practices by e-commerce marketplaces like Amazon and Flipkart by changing consumer protection rules to prevent these firms from selling their private label on their platforms and they liable for fraud committed by a seller and prohibits it from having its own supply chain management logistic chain, three people familiar with the matter said.

Although the move initiated by the Ministry of Consumer Affairs, Food and Public Distribution has a limited scope on consumer protection, the proposed changes could have far-reaching implications for e-commerce business in India, the people added, asking not to be identified. While two of the above three people are government officials, the third person is an executive at an e-commerce company.

The move to amend the Consumer Protection (e-Commerce) Regulations 2020 was first launched by the Department for Consumer Affairs in June 2021 after the government received complaints from “harmed” consumers and traders about “widespread fraud and unfair trading practices” by e-commerce companies, it said she. On June 21, 2021, the government proposed several changes to the rules and sought the views of stakeholders. The original consumer protection rules for e-commerce were notified by the headquarters on July 23, 2020.

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The proposal was shelved after some parts of the government – during inter-ministerial consultations – raised concerns that some of the rule changes would go beyond consumer protection and hamper the inflow of foreign investment into the sector, an official said, adding that the proposal has now been revived with appropriate modifications.

A second official confirmed that the matter was under investigation but not yet closed. E-mail inquiries to the Department of Consumers, the Department of Industry and Domestic Trade Promotion (DPIIT) and the Ministry of Finance went unanswered. Amazon and Walmart-owned Flipkart also didn’t respond to email inquiries on the matter.

The Department of Consumer Affairs proposed changes in June 2021 after domestic brick-and-mortar retailers felt threatened by anti-competitive practices, heavy discounts and predatory pricing as a result of the rapid growth of e-commerce. Small sellers on the platforms are also complaining against e-commerce entities designed to act as marketplaces to facilitate purchases, give preferential treatment to affiliated sellers and hamper consumer choice. E-commerce entities have lobbied against the ministry’s move to change the rules, and the matter has been shelved until recently.

The third person mentioned above said the proposed rule changes would change the basic model of e-commerce, with devastating effects on existing marketplaces. Any attempt to ban affiliates would make the logistics arms of Amazon and Flipkart illegal and destroy their tech-heavy supply chain system, which is the lifeline for both the e-commerce giants and small businesses selling goods on their platforms, he said . According to an industry estimate, the two foreign giants have jointly invested over $10 billion in their supply chain logistics.

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“The government must protect consumers and any such move has industry support. But many of the proposed changes are restrictive and appear to go beyond consumer protection. If the intention is to put global players out of business, the government should ban foreign direct investment in this sector,” he added.

According to the first official, e-commerce is still a developing business. “There have been instances where Amazon and Flipkart have engaged in unfair practices that are detrimental to consumers’ interests. For example, they apply AI (artificial intelligence) to push their partners’ products or their own private labels. They shrug off their responsibilities when customers are misled by companies selling products on their platforms,” ​​he said.

Experts say there should be a balanced approach. Rohit Arora, CEO and co-founder of fintech firms Biz2Credit and Biz2X, said the government is trying to protect small businesses from uncompetitive flash sales as well as funds billed through their end-to-end logistics services. “The key is that the government should be able to take measures that make SMEs competitive in terms of access to credit and markets. Also, the constant shift in policy is leading to more uncertainty in attracting FDI in sectors such as logistics and e-commerce, which are a major growth engine for India.”

The changes also aim to curb the threat of flash sales. Often, e-commerce businesses resort to anti-competitive flash sales that involve instant, heavily discounted, time-bound sales offers. While the Consumer Ministry proposed changing the rules on June 21, 2021, it said in a statement that “traditional third-party flash sales are not prohibited” on the e-commerce platform. “But certain e-commerce entities are limiting consumer choice by indulging in “back-to-back” or “flash” sales, where a seller selling on the platform doesn’t have inventory or order-fulfillment capabilities but merely places a “flash or back to back” order with another seller controlled by the platform. This prevents a level playing field and ultimately limits customer choice and increases prices,” it added.

According to industry estimates, e-commerce currently accounts for 6% of India’s approximately $900 billion retail sector. It is estimated that by 2027 it will become a $170 billion industry.