Grappling with uncertainty over several aspects of the draft e-commerce rules, industry bodies representing multinational giants, will be writing to the government seeking an extension on the July 6 deadline to propose suggestions, according to sources.

The proposed rules have been in direct contrast to the foreign direct investment (FDI) policy changes for e-commerce business, which came into effect in February 2019, experts said.

The FDI rules, allow foreign e-commerce marketplaces like Amazon and Flipkart (owned by Walmart) to sell through affiliated sellers but limiting their stake to up to 25 per cent in the joint venture company. It also classifies these platforms as intermediaries which facilitating the business but are not directly responsible for transactions between sellers and customers on the platform.

In contrast, the draft rules ask e-commerce marketplaces to not sell the goods of related parties on its own platform. Amazon has been a stakeholder in sellers like Cloudtail and Appario. Through the fall-back liability policy, e-tailers further would be responsible for any problems with goods or services sold through its platform by third-party sellers.

Conflict with FDI rules

“Placing a ‘fall-back’ liability on a marketplace platform for delays, negligence, omissions and commissions at the sellers’ end, impose disproportionate and impractical responsibilities on marketplace platforms (which are not permitted to hold inventory or sell its own products on the platform and are effectively acting as intermediaries). This not only dilutes their intermediary status under the Information Technology Act, 2000, but also puts them at risk of conflict with existing FDI norms,” Shreya Suri, partner, IndusLaw, told BusinessLine .

“There is a legal challenge on whether Amazon and Flipkart should make those changes or continue to being governed under the FDI rules. One of the first objectives of most industry bodies will be to ask for an extension on proposing changes to understand what the intent is and analyse the rules. Secondly, the industry bodies are also assessing the collateral damage brought by these rules, especially for the consumer as they might have to step out to buy things during the third wave. Also, there are lot start-ups which are feeling the pinch on whether they could be rightly fully termed as an e-commerce company,” a source privy to the developments told BusinessLine .

Impact on start-ups

“Most of the goods sold under private labels or through related sellers are made in India. If the related party seller ecosystem falls, this will cause job losses, MSMEs which are manufacturing these products will face a big challenge too,” the source said, adding “Though the target is Amazon and Flipkart, the eventual impact will be on the start-ups. Amazon and Flipkart are deep-pocketed, they will comply anyway.”

“Any policy talking about consumer protection should reflect that. This is more about compliance changes than anything to do with consumers to help in their journey. This is a very new industry which is looking at creating more opportunities, more technology specific roles, you can’t take it back by three decades, pandemic itself has been a great example of that need,” said the second source.

The rules also require foreign brands selling their products in India through e-commerce channels register themselves with The Department for Promotion of Industry and Internal Trade (DPIIT). “If smaller brands from Europe or China come to sell in India and don’t have a presence or offices in India, why would they want to get registered with DPIIT,” said the first source.

Level playing field

On the other hand, the Confederation of All India Traders (CAIT) applauded the proposed changes, calling it the much-awaited rules.

“Though these proposed rules are very basic things the government has asked from these businesses, such as the issue of mandatory registration, which all the offline shopkeepers and companies adhere to. The new thing is they have to appoint a grievance officer, nodal officer and chief compliance officer. These posts are needed, because time and again we have seen e-commerce companies flouting rules,” Praveen Khandelwal, Secretary General, CAIT, told this newspaper.

Khandelwal said these rules bring a level playing field for all the e-commerce players including Reliance and Tata too. “The unbelievable discounts given by the online players are not in parity with fair business practices. We also give discounts, but the range is around 2-5 per cent. But offering 60-70 per cent discounts is indulging in loss hunting exercise. Banning flash sales bring e-commerce to a level playing field. With these rules, e-commerce business will be more transparent and credible for both traders and consumers,” he said.

Addressing genuine concerns

Suri agrees. “Apart from some benefits to consumers, other proposed changes also appear to be aimed at addressing genuine concerns of sellers including in relation to the recognition of the concepts of ‘associated entities’ and ‘brand association’, which were working to the advantage of sellers associated in some manner with the platform,” she added.

The second source said, “Discounting has been a key marketing practice for hundreds of years. It gives brands an opportunity to reach and consumer dynamics, even smaller offline stores do that. These are marketing constructs. In the end, the consumer benefits. Think beyond metros, where even internet is patchy. You have money but hardly any places to buy that aspirational brand from. E-commerce brings that to your fingertips in the comfort of your homes. These rules will slow down the entire e-commerce ecosystem.”

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