India’s e-commerce regulatory contradictions: P2B regulatory blindspot
The study has been authored by Manjushree RM
Despite numerous statutory instruments applicable to E-marketplaces in India, the regulation of platform-to-business users (P2B) relationships leaves a great deal to be desired. Owing to this lacuna, several allegations of unfair trade practices against E-marketplaces such as self-preferencing, skewed search rankings and placements, and opacity in regards to the use of consumer data have come to the fore. In light of the growing importance of e-commerce to the Indian economy, regulatory attention towards such issues and the inherent power imbalances in P2B relationships is the need of the hour.
The flourishing of our domestic e-commerce market has predominantly been facilitated by India’s digital revolution, which has yielded benefits such as increased internet access and smart phone penetration, and seamless digital payments. Despite the Covid-19 pandemic which contributed to India’s overall retail market shrinking by 5% in FY 20-21, the e-commerce retail segment has grown by a staggering 25% resulting in a total valuation of $ 38 million.
The rise of e-marketplaces in India
Of the many emerging trends in Indian e-commerce over the past decade, a notable one is the budding popularity of ‘e-marketplaces’- online platforms that connect sellers/business users with consumers. E-marketplaces have garnered tremendous popularity from consumers due to the variety of perks it offers such as massively discounted rates, doorstep delivery services and hassle free payments, returns and refunds. Popular e-marketplaces in India include e-tail giants such as Amazon and Flipkart, food delivery aggregators such as Swiggy and Zomato and online hotel booking agencies such as Make My Trip.
Coinciding with the increasing popularity of e-marketplaces, is the trend of growing unease of business users that sell their goods and services on these platforms. Allegations of unfair trade and discriminatory trade practices such as deep discounting, preferential treatment of platforms for its own offerings, skewed search rankings and reviews, and opacity in the use of aggregated consumer data to better their own products have been routinely levelled against e-marketplaces.
These allegations are particularly pressing in light of the state of competition in the Indian e-commerce market, which exhibits a clear pattern of concentration with a handful of e-marketplaces controlling a major portion of the market. As such, partnering with them becomes unavoidable for small businesses and sellers who wish to find their footing in the e-commerce space. This indispensable position of e-marketplace giants have arguably accorded them the status of ‘gatekeepers’ wherein they now control the entry points of the market and set the rules of the Indian e-commerce game. Owing to the bargaining power imbalances, the business users are not in a position to negotiate with such e-marketplaces giants and, therefore, susceptible to accepting unfair contract terms to trade on and with e-marketplaces.
Who regulates e-marketplaces in India?
The regulation of e-commerce in India is amorphous, largely attributable to its nascency. Further, given that e-commerce in India does not pertain to a particular sector, different aspects of e-commerce are regulated by various regulators and ministries in a fragmented manner.
In the context of e-marketplace regulation, the Competition Act, 2002, the consolidated Foreign Direct Investment Policy, the Draft E-commerce Policy 2019, the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 and the Consumer Protection (E-commerce) Rules, 2020 are of relevance. So far, these laws have been toothless in the face of seller woes.
The Competition Act, 2002, allows for intervention only if the unfair practices discussed above are carried out by a ‘dominant’ entity. The Indian e-commerce market, although concentrated with a few big players, does not have an entity that is clearly dominant. As such, the Competition Commission of India has been not been able to effectively intervene in regulating such oligopolistic concentrations.
On the other hand, instruments such as the Consumer Protection (E-commerce) Rules, 2020 and the Draft E-commerce Policy, 2019 are primarily consumer welfare-centric and, therefore, do very little to ameliorate the position of business users vis-à-vis e-marketplaces.
Similarly, the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 and consolidated Foreign Direct Investment Policy are also limited in their applicability given that former is intended to be applicable to social media platforms and the latter to only foreign-funded e-marketplaces.
Evidently, the availability of legal redressal mechanisms for business users to ensure fairness in their dealings with e-marketplaces is lacking.
The way ahead: Plugging the regulatory gap
Although e-marketplaces are offer a plethora of benefits to consumers and are arguably boosting their welfare, the other side of the e-commerce growth story paints a different picture. With more and more consumers transitioning into online channels of sale in light of the Covid-19 pandemic, it is important for us to reimagine the e-commerce ecosystem such that it accounts for fair play while balancing the need for innovation.
In the context of P2B regulation, a comprehensive mechanism that addresses bargaining and power imbalances between e-marketplaces giants and their business is the need of the hour. Such a mechanism may take the shape of legislative amendments, rules, enforceable codes of conducts or any other form that strikes a balance between providing certainty to market players and equipping regulators with flexibility to update the mechanism periodically in line with the changing pace of the e-commerce market.
Internationally, P2B issues are being sought to be remedied through competition tools that selectively regulate e-marketplace giants that act as gatekeepers to certain market segments. A detailed overview of the regulatory responses of the European Union, the United Kingdom, the United States of America, China, Australia, Japan and Germany to P2B issues in their respective e-commerce ecosystems may be accessed here. Their responses comprise of ex-ante regulatory tools, i.e., tools that prohibit unfair trade practices from arising as opposed to remedying them ex-post facto.
Additionally, it is also important that such a mechanism accounts for the institutional realities of the Indian e-commerce regulatory architecture. The presence of multiple authorities and ministries regulating similar aspects of e-commerce has undeniably given rise to overlaps and has also paved the way for forum shopping and regulatory arbitrage. Any new mechanism targeted at regulating e-marketplaces comprehensively must also aim to harmonise existing regulation by weaving together a mechanism for inter-regulatory/ministerial co-operation.
(The study has been authored by Manjushree RM)