India’s proposed changes to consumer rules for the e-commerce sector could be hugely disruptive for some of the country’s biggest online shopping websites, including U.S.-based Amazon and Walmart’s Flipkart.
The rules come as U.S. firms battle allegations from traders for working around foreign investment regulations for the sector, and could further complicate the operating environment for Amazon and Flipkart even as the companies fight antitrust allegations in courts. The companies deny any wrongdoing.
India’s e-commerce market is projected to grow 30% annually to $200 billion by 2026. It also counts Reliance Industries’ JioMart, Tata’s BigBasket, Softbank-backed Snapdeal and Future Retail among major players.
Here are some of the new proposals, which are open for public consultation until July 6:
AFFILIATES AS SELLERS
E-commerce companies must ensure none of their “related parties and associated enterprises” are listed as sellers on their shopping websites, and no related entity should sell goods to an online seller operating on the same platform.
The changes could impact business structures used by Flipkart and Amazon, sources and lawyers said. Amazon specifically holds indirect stakes in two of the top sellers on its website.
Some of Amazon’s top sellers also used to buy goods through Amazon’s wholesale unit in India before reselling them on the site.
FLASH SALES BAN
E-commerce companies should not hold flash sales – which see deep discounts on offer – if these are organised “fraudulently” using “technological means” with an intent to benefit select sellers, the rules say.
Indian traders say the U.S. firms work with select sellers to offer certain models of smartphones and other products during these promotions, an allegation that the companies deny.
E-commerce firms, including Walmart-owned Flipkart and Amazon India, will likely take a hit if the consumer affairs department’s proposed changes to India’s e-commerce rules—including a ban on flash sales and curbs to scaling up private labels—get the go-ahead. According to the changes under the Consumer Protection Rules, 2020, online retailers would be barred from offering ‘flash sales’ for any goods or services on their platforms. They will also face difficulty in scaling up private brands, especially those that are synonymous with the name of the firm.
Brands associated with the e-commerce entity will be barred from promotion or sale on its platform, the rules said.
This is seen hurting private labels, which are brands owned or licensed by companies like Amazon to certain sellers, that then market them on their online platforms.
Both Indian and foreign players have developed extensive private label offerings in recent years which help them boost their overall profitability.
Websites selling imported products should identify them on the basis of their so-called “country of origin”. Further, they should add a filter mechanism and display notification to suggest “alternatives to ensure a fair opportunity for domestic goods”.
MISLEADING ADS, LIABILITY
No e-commerce entity shall allow any display or promotion of “misleading advertisement” on its platform. They also must within 72 hours of receiving an order assist government agencies for investigative or cyber security-related activities.
The new rules also propose to increase liability of e-commerce firms, which could be held liable if a consumer suffers due to a seller’s negligent conduct or failure to deliver goods.
Online websites should not mislead users by manipulating search results and provide ranking for goods while ensuring its parameters do not discriminate against domestic goods and sellers.
E-commerce companies will put in place a grievance redressal mechanism, including appointing a chief compliance officer. The government’s mandate for such appointments, already in place for social media companies, is seen raising compliance requirements of e-commerce firms.
The draft of Consumer Protection (E-Commerce) Rules has spelled out the modalities and parameters of conducting business in India, and would leave no scope for companies to play with the norms in a manner which they were doing for the past many years, domestic traders’ body CAIT said. Ban on fraudulent flash sales, misselling and appointment of chief compliance officer and grievance redressal officer — are among key amendments proposed to the Consumer Protection (E-Commerce) Rules, 2020, on which the government has sought public comments by July 6.