Introduction:
E-commerce in India has experienced exponential growth over the past few years, spanning various sectors, including groceries, electronics and general retail. The rapid digital transformation is driven by enhanced internet connectivity, advancements in logistics infrastructure, and the modernization of payment systems. As a result, e-commerce platforms have become a central component of the economy, providing unparalleled convenience to consumers and new growth opportunities for businesses. However, with the rapid rise in this sector, there is an urgent need for a well-structured and comprehensive regulatory framework to ensure that the benefits of e-commerce are distributed equitably among all stakeholders, including platforms, sellers and consumers.
The Confederation of All India Traders (CAIT) has raised concerns about the unfair trade practices in the e-commerce space, urging the need for stronger regulatory measures to protect small traders and ensure a fair marketplace
E-commerce – Growth and Benefits:
E-commerce offers significant benefits to both consumers and businesses. Consumers enjoy access to a wide range of products at competitive prices, along with the convenience of 24/7 shopping, easy product comparison, and quick returns. For businesses, particularly the small and medium-sized enterprises (SMEs), e-commerce provides access to a larger consumer base, reduced startup costs due to the lack of physical infrastructure, and enhanced scalability and visibility.
Despite these clear benefits, the dominance of larger platforms and sellers have created an imbalance, with smaller sellers struggling to gain visibility and access to a large customer base. To ensure that all stakeholders benefit equally from the e-commerce ecosystem, it is critical to formulate policies that provide a level playing field for both large and small participants
Regulatory Concerns in E-commerce
With the rapid expansion of e-commerce in India, concerns have emerged regarding the market dominance of large players, as well as the potential for unfair practices. In particular, quick commerce platforms such as Blinkit, Instamart, and Zepto have come under scrutiny for practices that may undermine India’s retail economy. These concerns require urgent attention from regulators to ensure that fair practices are maintained across the digital marketplace.
1. Foreign Direct Investment (FDI) in E-commerce.
India’s FDI Policy 2020 has been designed to provide a level playing field for all e-commerce market participants while ensuring that market distortions, such as price control, inventory manipulation, and vendor favouritism, are prevented. The policy distinguishes between the inventory-based and marketplace-based models of e-commerce, which have different implications for foreign investment.
Marketplace Model: FDI is permitted up to 100% under the automatic route, in respect of this model, subject to compliance with certain conditions – including the prohibition of platforms having control over inventory or the products sold on the platform.
Inventory-Based Model: Foreign investment is strictly prohibited with respect to this model, where the platform itself controls or owns the inventory being sold.
The FDI Policy 2020 ensures that e-commerce platforms in India operate under a marketplace model where they do not control the inventory. Violations of these regulations, especially in case of quick commerce platforms that may operate under an inventory-based model, can lead to penalties under the Foreign Exchange Management Act (FEMA) 1999.
A notable case involves Amazon and Flipkart, which have been accused of circumventing marketplace-only restrictions by structuring arrangements to retain control over key sellers. The Enforcement Directorate (ED) has alleged that these platforms effectively breached the FDI regulations by exercising indirect control over inventory. Should these companies be found guilty, consequences under FEMA could include heavy fines, asset seizures or operational restrictions. This case underscores India’s heightened regulatory scrutiny on foreign-backed e-commerce platforms and reinforces the need for transparency and strict adherence to FDI policies.
2. Competition Act, 2002
The Competition Act, 2002 aims to promote fair competition, protect consumer interests, and prevent anti-competitive practices in the market. The Competition Commission of India (CCI) has expressed concerns regarding certain practices in the e-commerce sector, particularly in relation to quick commerce platforms:
Exclusive Agreements: These agreements between platforms and sellers restrict sellers from listing products on competing platforms, thereby distorting market competition and creating barriers to entry for other market participants.
Deep Discounting: While initially used to attract customers and build user bases, deep discounting practices by dominant platforms can harm competition by undermining smaller competitors.
Platform Parity Clauses: These clauses force sellers to offer products at the same or lower prices on competing platforms, thereby limiting price competition and reducing consumer choice.
The CCI has also highlighted concerns related to the abuse of dominant market power by certain platforms, which may exploit their position to engage in one-sided contractual terms and unfair pricing practices. Such conduct undermines fair competition and harms both sellers and consumers. As pointed out in the CAIT White Paper report 2024, these issues have further intensified with the rise of quick commerce platforms, which bypass many of the established regulations.
3. ConsumerProtection Act, 2019
The Consumer Protection Act, 2019, along with the Consumer Protection (E-Commerce) Rules, 2020, specifically addresses the regulation of e-commerce entities to safeguard consumer rights. The rules mandate that e-commerce platforms adhere to transparency, fairness, and accountability in their dealings with consumers. These laws protect consumers from deceptive practices, misleading advertisements, defective products, and faulty return/refund policies, ensuring that their interests are adequately protected.
4. Data Privacy and Information Technology Act, 2000
The Information Technology Act, 2000, governs the protection of consumer data and privacy in India. Under Section 43A of the Act, e-commerce platforms are required to implement reasonable security practices to safeguard personal data. Despite this, there are growing concerns about the potential misuse of consumer data, especially given the lack of awareness among consumers and the insufficient enforcement of data protection rules.
Platforms must establish clear and transparent policies regarding the collection, use, and sharing of consumer data, as well as ensure that they comply with the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011.
5. Legal Metrology Act, 2009
The Legal Metrology Act, 2009, and its associated Packaged Commodity Rules, 2011 require e-commerce platforms to display accurate and standardized product information, including units, dimensions, weight, and other relevant details. This ensures that consumers are well-informed about the products they purchase, preventing misleading claims and promoting fair trade practices.
Recommendations for Addressing Challenges and Promoting Inclusive Growth
1. Challenges Faced by Smaller Sellers
While e-commerce has opened up new opportunities, smaller sellers face significant challenges such as limited visibility, high commission fees, and unfair competition from larger, dominant players. These smaller businesses often struggle to reach their target audience due to limited marketing budgets and are overshadowed by the resources of bigger sellers. For e-commerce to be truly inclusive, the policymakers must address these barriers to ensure fair growth for all. The CAIT White Paper report, 2024 highlights that unfair competition and high costs are severely hindering the growth of smaller businesses in the sector.
2. Policy Recommendations for Inclusive Growth
To foster a fairer e-commerce ecosystem, stronger regulatory oversight is needed to curb market dominance and ensure all sellers have equal access. Transparency in data practices is also essential, with clear rules to protect consumer privacy and prevent misuse. Tackling anti-competitive behaviours, such as exclusive agreements, deep discounting, and price parity clauses, is crucial for maintaining healthy competition. Finally, the policies should actively promote fair business practices by limiting exploitative tactics from dominant players, ensuring smaller businesses can compete on a level playing field.
Conclusion
E-commerce has revolutionized the Indian retail landscape, providing numerous benefits to both consumers and businesses. However, the rapid growth of the sector has also raised important concerns regarding market dominance, unfair business practices, and the challenges faced by smaller sellers. To ensure that the benefits of e-commerce are equitably distributed, it is essential to strengthen the regulatory framework, promote transparency, and adopt policies that foster a level playing field. By addressing these issues, India can create a more inclusive, competitive, and sustainable e-commerce ecosystem that benefits all stakeholders and supports long-term growth.
Authored: Ketan Mukhija (Senior Partner)
Co-authored: Marvel Soni (Associate)
