Explained: Why e-commerce companies are opposing new draft rules

The amendments propose several significant changes to e-commerce business models. If the amendments are passed, the e-tailer will have to abide by them.

Under the new rules, e-commerce firms like Amazon and Flipkart won’t be allowed to hold flash sales. Flash sales or deal-of-the-day sales are business practices where platforms offer products at discounted prices for a few hours or a day.

Though the government has clarified that 'conventional flash sales' will be allowed, there is no mention of the term in the proposed rules and no additional clarification has been given.

Even with 'conventional flash sales' allowed, e-commerce platforms will no longer be able to inform users about them. Moreover, the platforms won’t be permitted to advertise sellers who are offering discounts or any 'misleading' information about pricing, quality and guarantees.

The e-commerce players will also have to list the country of origin for each and every product being sold through the platform and for items not made in India, they will need to suggest local alternatives as well.

The amendment also lays out that platforms cannot manipulate search results to benefit one seller over the other.

E-commerce entities cannot sell their own goods through their platforms if they are registered as marketplaces, and their brand names cannot be used by other sellers either. None of their related business parties can sell goods through these platforms as well.

E-commerce platforms will also be required to provide 'fall back liability' for goods and services being sold on their platforms.

The amendment will apply to any entity, platform, or website that sells any good or service in India through a digital or electronic medium. All such companies will have to register themselves in India with the Department of Promotion of Industry and Internal Trade. They will need to appoint grievance officers, nodal officers and a chief grievance officer to liaison with the government, similar to social media intermediaries.

Since there is little clarity on definitions, the rules can be expanded to a large array of businesses that may not consider themselves as 'e-commerce entities' but would be defined as one regardless.

While defined as a consumer protection law, the amendments are focused on anti-competition practices, protectionist policies and increased compliance burden on e-commerce entities.

For example, foreign e-commerce entities are not allowed to engage in the inventory model through FDI. But under the new rules, even though they have no control over the sellers and their actions, they will be held liable for defective goods and services through 'fall back liability'.

Similarly, the amendments will bring a regulatory burden on smaller e-commerce entities with the requirement of grievance officers for all firms regardless of their size or sector.

The new amendments have several other legal implications that will fundamentally change the e-commerce sector in the country and may drive out the chance of small e-commerce startups from succeeding. The amendments can also potentially crush the competition when the rules actually sought to encourage it in the first place.

There are provisions within the amendments that are decidedly pro-consumer. Explicit consent and listing of sponsored products are two examples.

However, experts say that the knock-off result of less competition will impact consumers and the increased regulatory burden may often be passed onto the consumers.

India's burgeoning e-commerce sector has been propelled by rapid growth and returns. Morgan Stanley had initially estimated that the sector would hit $200 billion by 2026, before COVID-19 and the first set of e-commerce rules were passed.

But rapid success has often come at the expense of brick and mortar stores. It is perhaps not surprising why the Confederation of All India Traders (CAIT) has been pushing hard for the amendments to pass through, asking for stricter compliance requirements even though none of the pro-consumer provisions of the law are applicable to physical retailers.

With the new rules, the e-commerce sector may not reach the $200 billion figure. The Internet and Mobile Association of India (IAMAI) has said the rules can "significantly change the landscape of e-commerce in India and impede innovation".

The rules can also have economy-wide effects with increased compliance liabilities leading to dipping investor sentiment and ease of doing business in the country going down.