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Inventory-led model, paid reviews may be barred under new e-commerce rules in the works

Moneycontrol lists the proposed changes to Consumer Protection (E-Commerce) Rules.

May 26, 2023 / 02:23 PM IST
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Fair access to logistics and other service providers, and greater transparency in parameters, which determine ranking on e-commerce platforms are also part of the proposed changes. (Representative image)

The government is considering to tighten rules to protect e-commerce consumers that include barring related parties from selling on e-commerce platforms, curbing paid reviews and introducing a so-called fallback liability for marketplaces, according to an advisory firm note which summarises the proposed tweaks and assesses their impact.

The proposals to change the rules have been discussed within closed group sessions organised by the Ministry of Consumer Affairs.

Fair access to logistics and other service providers, and greater transparency in parameters, which determine ranking on e-commerce platforms are also part of the proposed changes.

In July 2020, the government had notified the Consumer Protection (E-Commerce) Rules, 2020, which sought to regulate all goods and services bought or sold over digital or electronic networks including digital products.

What are the proposed changes?

The ministry is considering to make a clear distinction between a marketplace and an inventory e-commerce entity and disallowing the inventory model of e-commerce from a marketplace. The inventory model of e-commerce refers to a business model in which the e-commerce platform itself holds and manages the inventory of products it sells.

Moreover, related parties and associated entities, it is proposed, will not be permitted to sell on the platform. This could apply both to foreign and domestic platforms.

Secondly, it is proposed to make a level-playing field for logistics service providers, payment gateways, and other services to access e-commerce businesses.

This amendment is aimed at pushing e-commerce entities to provide unbundled options to the consumer rather than advocate for certain specific logistics and payment options, just like in the case of Open Network for Digital Commerce.

Another proposed change to the e-commerce rules includes transparency in the weightage assigned to each parameter in the determination of the ranking of sellers on e-commerce platforms. Marketplaces such as Amazon and Flipkart have been under the regulatory scanner in recent years for alleged preferential ranking of certain sellers.

Under the changes, e-commerce entities may face a fallback liability, whereby they would be liable to make good the consumers’ losses in case a seller fails to deliver goods.

Strengthening of consumer grievance redressal mechanism through appointments of chief compliance officer, nodal contact person and grievance officer is also on the list of changes.

It is also proposed to protect consumers from fake and deceptive reviews in e-commerce by mandating compliance with the recently released BIS standard IS 19000:2022.

Likely impact on firms

The advisory firm is of the view that, on the whole, the proposed amendments could create onerous obligations for micro, small and medium enterprises. Moreover, the proposals do not deal with long-standing issues such as a lack of definitional clarity on what constitutes a digital product.

While these changes aim to create a fair and equitable e-commerce marketplace, they can also affect innovation, create barriers to entry for new entrants and impact the ease of doing business for domestic and foreign entities, the firm added, seeking a wider public consultation on the rules.

Moneycontrol News
first published: May 26, 2023 02:23 pm