Protecting Consumers, Sellers and Platforms: A Case for India’s Upcoming E-Commerce Industry

Home grown, digital platform-based companies are bridging the gap between MSMEs in remote areas, particularly in rural India, and buyers that are spread across the country.

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On June 21, 2021, the Ministry of Consumer Affairs, Government of India released draft amendments to the Consumer Protection (E-commerce) Rules, 2020. These amendments are meant to check platform malpractices and address the increasing number of grievances raised by consumers using e-commerce platforms. The amendments can be broadly categorised into four types of changes – (i) definitional (ii) operational (iii) platform liabilities and (iv) prohibitions. In the past one month, industry stakeholders and academics have shared their opinions, both in favour of and against, these proposed amendments. This piece contributes to the debate by examining the impact of the amendments on small and medium businesses, both online and offline, in India.

According to the Ministry of MSME, there are about 1.4 million ‘registered’ micro, small and medium enterprises, across the manufacturing and services sectors in India. While describing the overall landscape for MSMEs in the country, the report highlights the lack of market access as one of the key challenges faced by MSMEs in India. E-commerce platforms create market access opportunities for MSMEs through their supply chain and delivery partnerships (see here).

During the COVID-19 pandemic, almost out of necessity, online platforms steadily replaced store-based retail channels, crafts exhibitions and ‘haats’. Acknowledging the importance of such platforms, the NITI Aayog in April 2020  considered the integration of SMEs on e-commerce platforms and the creation of an online repository of products sold by SMEs on e-commerce platforms. A few private companies in India are already actively engaged in integrating MSMEs through such platforms.

The size of the e-commerce market in India is estimated to increase from the current $64 billion to $188 billion by 2025, with an online shopper base of 220 million that spreads beyond urban centres. The growth of this market will not be led by the big platforms alone, but the myriad small initiatives that are taking the form of niche platforms and customised e-commerce.

In such a scenario, the proposed amendments by the Ministry of Consumer Affairs, are a considerable over-reach and may potentially impact the growth of a sector that is organically moving towards formalisation and upgradation of industries in India. While definitional and operational changes such as registration of all e-commerce companies, setting up a grievance redressal framework, 24×7 nodal officer, etc. will positively impact compliance monitoring of e-commerce companies, a graded approach to compliance may be necessary to enable the growth of smaller and resource constrained set ups.

Also read: India E-Commerce Rules Cast Cloud over Amazon, Flipkart and Other Retailers

The compliance burden on smaller platforms and start-ups may become excessive, discouraging their participation, and adversely affecting market competition in the long run. In an ongoing ICRIER study on examining the impact of e-commerce on MSMEs in India, key informant interviews highlight how home grown, digital platform-based companies are bridging the gap between MSMEs in remote areas, particularly in rural India and buyers that are spread across the country.

The lack of clarity on issues such as cross-selling and the intent to maximise revenue will result in operational and regulatory uncertainty for platform owners, especially those not supported by elaborate legal and policy teams. A mention of markers that qualify intent will help in better implementation of the law. The absence of platform safe harbour in cases of mis-selling is another example of disproportionate burden on smaller platforms that work only with the unorganised sector. For instance, platforms that work with craftsman in the handicraft sectors, reported during the survey analysis of the same ICRIER study, that expecting sellers of handmade goods to provide an accurate picture of the final product at the time of selling is not always possible.

Some e-commerce platforms are also experimenting with technology and AI-based tools to address the problem of accurate product descriptions. However, irregularities and uniqueness generally remain in the finish of hand-made products, even if these are made by the same craftsman. Platforms selling such hand made products will therefore be more susceptible to mis-selling penalties, lowering their intent to participate and scale up e-commerce.

While checking mis-selling is necessary, the guidelines could be made more accommodative by allowing platform owners to verify information provided by sellers, instead of holding platforms directly responsible for misinformation provided by sellers. This is also linked to the provision on fall-back liabilities, which hold platforms responsible for any consumer harm resulting from the conduct of a listed seller. Platforms must be provided safe harbour, if proven to have acted in compliance with the law and made efforts to protect consumer interest. The proposed provisions can be likened to shops mis-selling on high street real estate and the municipal corporation being caught for providing space to the seller.

The consumer centric guidelines must be balanced with provisions that allow adequate protection to sellers and platforms, where they are not necessarily guilty. Most of the provisions assume that all e-commerce platforms are owned and operated by large companies. While it is true that some of the larger e-commerce platforms dominate the space, yet, it cannot be denied that many new, small and product-specific e-commerce platforms are emerging, many of which are working specifically with MSMEs and local manufacturers. Onerous and rigid compliance requirements can produce counterproductive outcomes for the industry.

While e-commerce platforms may have been found to indulge in malpractices and present palpable risks to abuse of market power, they are also making economic contributions, especially to the growth of India’s MSMEs. The overwhelming focus on reining the big e-commerce platforms and the risks posed by their misgovernance can create disproportionate damage to the emerging group of small-scale e-commerce platforms. Calibration of rules and compliance requirements will enable the growth of the sector with adequate safeguards to protect consumer interest.

Tanu M. Goyal is a Consultant and Mansi Kedia is a Fellow with Indian Council for Research on International Economic Relations (ICRIER), New Delhi. They can be contacted at tgoyal@icrier.res.in and mkedia@icrier.res.in, respectively. Views expressed are personal.