India’s food and consumer regulators are banking on reputational risk to nudge companies to follow consumer laws. This is because India’s food and consumer regulators don’t have the power to impose large penalties that can act as a deterrent. Legal experts say the approach of the regulators — akin to naming and shaming — is unconventional but has proved efficient in forcing companies towards better compliance of consumer rules.
The development assumes significance as both regulators have been proactively calling out companies such as cab and food aggregators on social media.
Food standards in India are monitored by Food Safety and Standards Authority of India (FSSAI), while the Central Consumer Protection Authority (CCPA), which works under the consumer affairs ministry, regulates consumer issues.
Under the FSSAI act, the penalties that can be imposed run into only a few lakhs, while under CCPA the maximum penalty that can be imposed is Rs 50 lakh. Market participants say these penalties are not large enough to bother big corporations, prompting the regulators to call out the brands for their unfair practices.
Speaking at Network 18’s Powering Bharat Summit earlier this month, food processing industries minister Chirag Paswan said, “I am not just talking about penalties ...beyond them we can dent their brand names to an extent. We want the industry to grow but at the same time, we don’t want any companies to play with the health of our citizens.”
FASSI, CCPA probing diary makers, Uber, Ola, Zomato
Several large corporations have been found to be flouting consumer and food safety rules. FSSAI is probing many dairy makers who have been mislabelling paneer. It is also looking into excess sugar used in some baby foods produced by large multi-nationals.
CCPA, on the other hand, has been probing an array of companies including Uber, Ola, Swiggy, Zomato, Zepto amongst others.
“Any adverse findings by the regulators brings huge reputational risk to these leading brands and when you are in consumer facing industries, brand reputation is very important. All the orders passed and action taken by the regulator is in public domain, if any company flouts rules, they lose out in terms of brand trust. Our view is very simple; companies have to follow consumer standards as prescribed under Indian laws,” a senior government official said on condition of anonymity.
While it is an effective method, regulators should also keep in mind the legal principles, including proportionality before calling out the brands, experts said.
‘Leveraging reputational risk for regulation unconventional’
“The proposal to leverage reputational risk as a regulatory instrument would mark a significant, albeit unconventional, shift in India’s approach to consumer protection and food safety enforcement,” Supreme Court advocate Tushar Kumar said. “While such a measure may hold theoretical merit, particularly in an era where brand image and consumer trust are critical assets, it raises important questions of due process, proportionality, and legal sanctity.”
Previously, the minister had also tweeted against the consumer practices of Swiggy and Zomato. Last year, minister Prahlad Joshi had called out Uber for allegedly showing differential pricing for customers depending on the phone they are using.
“In a market where brand image and consumer trust are paramount, the prospect of public censure and damage to reputation can be a more compelling motivator for businesses than modest fines. The CCPA's annual reports, for instance, detail actions against companies, including naming them and publicizing penalties, which serves this purpose. However, for this strategy to be sustainably effective and fair, it's important that it is balanced with efforts to strengthen the underlying financial penalty framework,” said Aviral Kapoor, partner, Alagh & Kapoor Law Offices.
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