e-Commerce: The New Boom
What are Deceptive Dark Patterns?
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Deceptive Dark Patterns
Why in the News?
The Advertising Standards Council of India (ASCI) has released a report highlighting the use of deceptive dark patterns in Indian apps.
Key highlights of the ASCI Study:
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What are Deceptive Dark Patterns?
- These practices use elements of digital choice architecture, particularly in user interfaces.
- The goal is to manipulate or impair consumer autonomy, decision-making, or choice.
- These patterns are often subtle, directing users toward decisions that may not align with their true preferences.
- As a result, they compromise the ability of users to make informed choices.
Examples of Deceptive Patterns:
| Description | Example | |
| Interface Interference | Directs users to specific choices using visual tricks. | Highlighting preferred options with bright colors. |
| Confirm Shaming | Uses guilt to push users toward certain actions. | Options like “Upgrade now” vs. “I don’t want a smarter software.” |
| Basket Sneaking | Adds unwanted items to cart without consent. | Automatically adding a donation to the shopping cart. |
| Privacy Deception | Tricks users into sharing more personal data. | Requiring unnecessary personal info during signup. |
| Drip Pricing | Reveals extra fees late in the purchase process. | Adding hidden charges at checkout. |
| Subscription Trap | Leads to unintended subscriptions without clear notice. | “Free trial” that auto-renews to a paid plan. |
Importance of Ethical Design
- Raising Awareness: Marketers are encouraged to study the guidelines issued by ASCI and the Department of Consumer Affairs to avoid unethical practices.
- Conscious Patterns Website: Marketers can use resources like the Conscious Patterns website to test their apps and obtain a “conscious score” to ensure that their apps balance business needs with user interests.
- Digital Responsibility: As the digital world evolves, ethical design practices are crucial for building and maintaining trust with customers.
- Marketer and Designer Roles: Both marketers and app designers need to be vigilant about pursuing ethical design to create safe and trustworthy online environments.
PYQ[2015] What are the impediments in marketing and supply chain management in developing the food processing industry in India? Can e-commerce help in overcoming this bottleneck? |
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e-Commerce: The New Boom
The State of India’s Informal Economy
Note4Students
From UPSC perspective, the following things are important :
Prelims level: About NSSO
Mains level: Key highlight of recent survey by NSSO
Why in the news?
The NSSO’s 2021-22 and 2022-23 survey outcomes reveal effects of significant economic shocks due to demonetisation, GST implementation, and the COVID-19 pandemic on India’s economy.
About NSSO:
Key highlight as per the recent survey by NSSO
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What are unincorporated enterprises?
- Unincorporated enterprises are informal businesses not legally registered as companies.
- They include MSMEs, household units, own-account enterprises, and partnerships, operating outside formal regulatory frameworks but contributing significantly to employment and economic activity.
Why are these survey results important and what do they represent?
- Timely Insights: These survey results offer current data crucial for understanding the evolving role of the informal sector in job creation, particularly during economic slowdowns when formal sector employment may decline.
- Impact Assessment: They provide a detailed analysis of how significant economic events like demonetisation, GST implementation, and the COVID-19 lockdowns have affected the informal sector, highlighting vulnerabilities and resilience.
- Policy Relevance: The findings inform policymaking aimed at supporting and regulating the informal sector, ensuring that measures address its unique challenges and contributions to overall economic stability and inclusivity.
What has been the pattern of ‘Informal Employment’ across states?
- The data shows a mixed pattern across states, with 16 out of 34 states/UTs recording a decline in informal sector workers in 2022-23 compared to 2015-16.
- Around 63 lakh informal enterprises shut down due to GST between 2015-16 and 2022-23, resulting in a loss of about 1.6 crore jobs.
- The number of informal enterprises plunged from 50.32 lakh with 85.6 lakh workers in April-June 2021 at the peak of the COVID-19 second wave, to 1.91 crore firms with 3.12 crore employees in January-March 2022.
Way Forward:
- The government should provide targeted support and incentives to help informal enterprises adapt to the post-GST and post-pandemic environment.
- Policymakers should aim to facilitate a gradual transition of informal enterprises to the formal sector.
Mains PYQ:
Q How globalization has led to the reduction of employment in the formal sector of the Indian economy? Is increased informalization detrimental to the development of the country? (UPSC IAS/2016)
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e-Commerce: The New Boom
What does the Karnataka Bill promise gig workers?
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Who are Gig workers?
Mains level: Why are safeguards necessary for Gig workers?
Why in the News?
The Karnataka government released the draft of the Karnataka Platform-based Gig Workers (Social Security and Welfare) Bill, becoming the second Indian state to take such an initiative, following Rajasthan.
Who are the Gig workers?
Gig workers are independent contractors, freelancers, or temporary workers who are hired for specific projects or tasks, often through online platforms, rather than being employed in traditional long-term employer-employee relationships.
Key highlight of the Bill proposed for the welfare of gig workers:
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What are the impacts of the labour market in a larger domain, and why are safeguards necessary?
- Lack of Basic Rights and Social Security: Gig workers are often classified as “partners” rather than employees, leaving them security outside the purview of labour protection laws and without access to basic rights and social benefits.
- Arbitrary Terminations and Lack of Grievance Redressal: Instances of arbitrary terminations, blacklisting, and dismissals without hearing the worker’s side are common in the absence of regulatory laws. Automated monitoring and decision-making systems often make these decisions, leaving no room for grievance redressal.
- Reduced Payments and Exploitation: Over the years, gig workers have faced reduced payments, arbitrary deductions, and exploitation due to the lack of regulatory laws governing the gig economy.
- The wide gap between the purchasing power of these workers and the affluent consumers they serve raises questions about the long-term sustainability of this model.
- Need for Transparency and Fair Contracts: The absence of transparency in automated monitoring systems and decision-making by platforms, as well as the lack of fair contracts, has led to the exploitation of gig workers.
- There is a need for the state to review contract templates and ensure fair contracts with gig workers.
- Lack of Access to Credit and Skill Development: Gig workers often lack access to credit and skill development opportunities, hindering their growth and formalization.
- There is a need for enabling platforms to provide these benefits to gig workers.
State-level and National level Initiatives taken previously:
- Code on Social Security, 2020: At the national level, the Code on Social Security, 2020 recognized those who freelance or work under short-term contracts. It mandated employers to provide benefits similar to those of regular employees to gig workers.
- Rajasthan Platform-Based Gig Workers (Registration and Welfare) Act: Rajasthan became the first state to introduce a bill for the welfare of gig workers in 2023.
- The bill, which became an Act in September 2023, sought to establish a welfare board and fund for gig workers.
- However, the Act has gone into cold storage after the changed government in November 2023.
- Haryana Gig Workers Welfare Board Bill: The bill aims to establish a state-level board dedicated to the social and economic security of gig workers involved in delivering goods, services, and food at doorsteps.
Case study:
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Way forward:
- Unified Legislation: Introduce a comprehensive national-level legal framework specifically addressing the rights and welfare of gig workers. This legislation should encompass social security, fair wages, occupational safety, and grievance redressal mechanisms.
- Strict Enforcement: Ensure robust enforcement of these laws through dedicated government bodies and regular audits of gig economy platforms. Penalties for non-compliance should be substantial enough to deter exploitative practices.
Mains PYQ:
Q Examine the role of ‘Gig Economy’ in the process of empowerment of women in India. (UPSC IAS/2021)
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e-Commerce: The New Boom
Gig Workers suffer from Lack of Social Security, Regulation: Study
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Gig Workers
Mains level: Regulating Gig Economy
In the news
- A recent study conducted by the People’s Association in Grassroots Action and Movements highlights the working conditions and challenges encountered by app-based cab and delivery drivers/persons in India.
- The findings underscore the critical need for enhanced social security measures and regulatory oversight to safeguard the welfare of gig workers in the country.
Key Findings on Gig Workers
- Extended Working Hours: Approximately a third of app-based cab drivers work for over 14 hours daily, with over 83% working more than 10 hours and 60% exceeding 12 hours, reflecting the demanding nature of their work.
- Caste-wise Impact: The study reveals a disproportionate impact on drivers from Scheduled Castes and Tribes, with over 60% working beyond 14 hours compared to only 16% from the unreserved category.
- Financial Strain: More than 43% of participants earn less than ₹500 per day or ₹15,000 monthly after expenses, highlighting the precarious financial situation faced by many workers.
- Financial Hardship: A significant majority (76%) of delivery persons struggle to meet their financial needs, indicative of the economic challenges inherent in the gig economy.
- Other Challenges: Issues such as ID deactivation and customer misbehaviour further compound the difficulties faced by workers in the app-based transport and delivery sector.
Implications of the Report
- Social Disparities: Income disparities exacerbate existing social inequalities, particularly among workers from different caste backgrounds, perpetuating cycles of poverty and distress within these communities.
- Health and Safety Risks: Prolonged working hours contribute to physical exhaustion and increased risk of road traffic accidents, compounded by pressure from e-commerce platforms to achieve rapid delivery times. Lack of social and job security adds to stress levels and poses potential health risks for workers.
Understanding the Gig Economy
- In a gig economy, temporary, flexible jobs are prevalent, with companies often hiring independent contractors and freelancers instead of full-time employees.
- Tech-enabled platforms connect consumers with gig workers for short-term services across various sectors.
- Sectors such as media, real estate, legal, hospitality, and technology are already operating within the gig economy framework, offering opportunities for self-employed individuals, freelancers, and part-time workers.
Key Drivers for Gig Economy Growth
- Changing Work Preferences: Millennials prefer flexible work arrangements over traditional full-time employment, driven by hectic lifestyles and a desire for autonomy.
- Startup Culture: Startups hire contractual freelancers to reduce fixed costs associated with full-time employees, fostering the growth of the gig economy.
- Freelancing Platforms: The proliferation of freelancing platforms facilitates connections between gig workers and businesses, enabling seamless transactions.
- Post-Pandemic Transition: The pandemic has prompted laid-off employees to explore freelance opportunities, contributing to the expansion of the gig economy.
Advantages and Challenges
[A] Advantages for Workers
- Profit through Diversification: Gig workers can supplement their income by engaging in multiple gigs simultaneously.
- Empowerment and Flexibility: Women and retired individuals benefit from the flexibility offered by gig work, empowering them to balance work and personal responsibilities.
- Cost Savings and Convenience: Work-from-home arrangements reduce travel costs and offer convenience to workers, enhancing their overall quality of life.
[B] Advantages for Employers
- Efficiency and Productivity: Gig workers often exhibit higher efficiency and productivity compared to traditional employees, driving business growth.
- Cost Savings: Employers save on benefits, office space, and training costs associated with full-time employment, optimizing resource allocation.
Challenges in the Gig Economy
- Lack of Employment Perks: Gig workers miss out on traditional employee benefits such as pension and gratuity, leading to financial insecurity.
- Job Insecurity: Unfair termination and inadequate wages pose significant challenges for gig workers, contributing to job insecurity.
- Legal Protections: Gig workers lack bargaining power and legal protections, making it difficult to negotiate fair terms with employers.
- Access and Connectivity: The gig economy remains inaccessible to rural populations with limited internet connectivity and infrastructure.
Way Forward
- Policy Reforms: The government must fine-tune existing social security policies to address the unique needs of gig workers, ensuring comprehensive protection and support.
- New Legislation: The centre must thrive in from the Platform-Based Gig Workers (Registration and Welfare) Bill, 2023 recently introduced in Rajasthan Assembly.
- Collaborative Efforts: Stakeholders across sectors should collaborate to establish industry-wide standards and best practices for gig work, promoting fair treatment and equitable opportunities.
- Technology Integration: Leveraging technology can enhance access to gig opportunities and streamline processes for both workers and employers, fostering a more inclusive and efficient gig economy ecosystem.
Conclusion
- The gig economy presents both opportunities and challenges for workers and businesses alike.
- By addressing key issues and fostering a conducive regulatory environment, India can harness the full potential of the gig economy while ensuring the well-being and rights of all stakeholders involved.
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e-Commerce: The New Boom
Regulating India’s online gaming industry
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Na
Mains level: online gaming industry
Central Idea:
The article underscores the urgent need for comprehensive regulation in India’s online gaming industry due to emerging market failures causing societal harm and financial losses. It emphasizes the challenges posed by the cross-border nature of the internet and the proliferation of illegal operators, highlighting the necessity for government intervention.
Key Highlights:
- Online gaming in India is a rapidly growing industry poised to contribute significantly to the country’s GDP.
- Market failures, including addiction, mental health issues, frauds, and national security threats, necessitate government intervention.
- The absence of a specialized regulatory authority allows illegal operators to thrive, impacting users and causing financial losses.
- The Information Technology Rules of 2021 were a positive step, but delayed implementation of Self-Regulatory Bodies has impeded progress.
- The UK’s centralized regulator serves as a model for effective oversight in the gaming sector.
Key Challenges:
- Enforcing state-level bans on online gaming is challenging due to the cross-border nature of the internet.
- Differentiating between legitimate gaming platforms and illegal gambling/betting sites is a significant challenge.
- Insufficient regulation contributes to the growth of illegal offshore markets, causing harm to users and significant tax losses.
- Delayed implementation of Self-Regulatory Bodies hampers oversight in the gaming industry.
Key Terms/Phrases:
- Market failures
- Online gaming industry
- Digital regulation
- Self-Regulatory Bodies
- Illegal offshore gambling
- National security concerns
- Player protection requirements
- Shadow economy
- Centralized government regulator
- Harm reduction
Key Quotes:
- “Market failures diminish economic value and erode societal well-being.”
- “The benefits of government intervention must surpass its potential costs.”
- “To protect 373 million gamers in India, who are potentially at risk, it is imperative that the sector is strictly regulated.”
Key Statements:
- “Insufficient regulation in the online gaming industry is leading to market failures and significant societal concerns.”
- “The delayed implementation of Self-Regulatory Bodies is hindering the oversight needed to protect gamers.”
- “Illegal offshore markets are causing harm to users and substantial tax losses, highlighting the urgency of strict regulation.”
Key Examples/References:
- The UK’s centralized government regulator as a model for effective oversight in the gaming sector.
- The Information Technology Rules of 2021 as a commendable step towards regulation in India.
- The growth of illegal offshore markets causing a $45 billion annual tax loss.
Key Facts/Data:
- India has 692 million internet users, making it the second-largest internet user base globally.
- The average daily mobile app usage in India has surged to 4.9 hours, with 82% dedicated to media and entertainment.
- The illegal offshore gambling and betting market receives $100 billion per annum in deposits from India.
Critical Analysis:
Insufficient regulation in the online gaming industry is leading to severe consequences, including societal harm and financial losses. The delayed implementation of regulatory measures further exacerbates the problems, emphasizing the need for urgent action. The comparison with the UK’s regulatory model highlights the potential benefits of strict enforcement and harm reduction strategies.
Way Forward:
- Swift implementation of Self-Regulatory Bodies to ensure effective oversight in the online gaming industry.
- Learning from successful models like the UK’s centralized regulator for efficient regulation and enforcement.
- Collaboration between government and industry stakeholders to establish a robust regulatory framework.
- Public awareness campaigns to differentiate between legitimate gaming platforms and illegal operators.
- Continuous monitoring and adaptation of regulatory measures to address evolving challenges in the online gaming sector.
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e-Commerce: The New Boom
Dark Pattern Sales by Airlines deemed ‘Cybercrime’
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Dark patterns advertising
Mains level: Consumerism Issues
Central Idea
- Due to complaints of deceptive practices by airlines and online travel agents, the Indian Ministry of Civil Aviation has urged IndiGo to fix its website, which a government official termed a Dark Pattern “cybercrime.”
“Dark Patterns” in Airline Practices
- Deceptive Techniques: Airlines and online portals have been accused of employing “dark patterns” in their user interfaces, which manipulate consumers into purchasing products they did not intend to buy.
- Consumer Affairs Secretary’s Stance: The Consumer Affairs Secretary, Rohit Kumar Singh, defines “dark patterns” as tactics nudging consumers into unintended purchases, constituting unfair trading practices and possibly cybercrimes.
- Pervasive Issue: Approximately 10,000 complaints related to these practices have been lodged with the Ministry via the National Consumers Helpline over the past eight to nine months.
Manipulating Seat Selection
- IndiGo’s Practice: IndiGo Airlines, for instance, employs a tactic known as “false urgency,” creating a sense of urgency by implying that consumers must pay an extra fee (₹99 to ₹1,500) for seat selection during booking, portraying all free seats as unavailable.
- Transparency Issue: Passengers are not adequately informed that they will be auto-assigned free seats if they choose not to pay the extra fee.
- Obfuscation: The “skip” option, although present, is inconspicuously located, demonstrating “interface interference.”
Additional Unfair Practices
- SpiceJet’s Pressure for Insurance: SpiceJet’s website pressures passengers to purchase travel insurance by using alarming phrases like “I will risk my trip” if they opt out, playing on passengers’ fears.
- “Basket Sneaking” by MakeMyTrip: MakeMyTrip adds a convenience fee when customers reach the payment gateway after booking, a practice known as “basket sneaking.”
Draft Guidelines and Regulatory Perspective
- Ministry of Consumer Affairs Guidelines: These dark patterns have been defined in the draft guidelines released by the Ministry of Consumer Affairs in September.
- DGCA’s Stance: The Directorate General of Civil Aviation (DGCA) permits “unbundling” airfares but emphasizes that these services must be offered on an “opt-in” basis, with clear descriptions without ambiguity.
- Parliamentary Committee Report: A parliamentary committee report urges transparency in seat-wise airfares, fair pricing mechanisms to ensure reasonable profit margins, and effective grievance redressal mechanisms.
Conclusion
- The crackdown on deceptive airline practices by the Indian Ministry of Civil Aviation signifies a push for transparency and fairness in the airline industry.
- The rise of “dark patterns” and other misleading tactics in online booking processes has raised concerns about consumer exploitation and cybercrimes.
- As the government takes action to address these issues, passengers may expect a more equitable and transparent air travel experience in the future.
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e-Commerce: The New Boom
India’s Draft Guidelines on Dark Patterns
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Dark patterns advertising
Mains level: Read the attached story
Central Idea
- The Indian government has invited public feedback on draft guidelines aimed at preventing and regulating “dark patterns” on the internet, particularly within e-commerce platforms.
- These guidelines target deceptive tactics such as false urgency, basket sneaking, confirm shaming, forced action, subscription traps, and other manipulative practices.
Understanding Dark Patterns
- The draft guidelines define dark patterns as deceptive design practices that utilize user interface and user experience interactions on any platform.
- These practices are designed to mislead or trick users into actions they did not initially intend or want to take.
- Dark patterns undermine consumer autonomy, decision-making, and choice, potentially constituting misleading advertising, unfair trade practices, or violations of consumer rights.
Types of Dark Patterns
- “False urgency” involves falsely conveying or implying a sense of urgency to users.
- “Basket sneaking” entails adding additional items to a user’s cart during the checkout process without their consent.
- “Confirm shaming” uses phrases, videos, audio, or other means to evoke fear, shame, ridicule, or guilt in users.
- “Forced action” compels users to take actions that necessitate purchasing additional goods.
- “Subscription trap” makes it nearly impossible or overly complex for users to cancel paid subscriptions.
- “Interface interference” manipulates the user interface for deceptive purposes.
- “Bait and switch” advertises a specific outcome based on user actions.
- “Drip pricing” conceals elements of prices until later in the transaction.
- “Disguised advertisement” and “nagging” are also defined in the guidelines.
Scope of Application
- The Ministry states that these guidelines will apply to all individuals and online platforms, including sellers and advertisers.
Challenges in Enforcement
- Legal experts appreciate the introduction of the draft guidelines but raises concerns about enforcement.
- They highlight the challenge of conclusively proving whether certain practices qualify as dark patterns.
- Famous is the example of the “false category” and the difficulty regulators may face in determining if claims like “only 2 rooms remaining – book now!” are genuinely accurate or misleading due to a lack of context.
- Some categories of dark patterns, such as e-retail sites adding items to users’ carts without their consent, are seen as easier to regulate, while others like “disguised advertisements” may require further clarification.
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e-Commerce: The New Boom
Deloitte heaps praises on India’s ONDC
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Open Network for Digital Commerce (ONDC)
Mains level: Read the attached story
Central Idea
- The Open Network for Digital Commerce (ONDC) is poised to revolutionize India’s digital commerce sector, which is projected to reach $350 billion by 2030.
- Deloitte India recently released a whitepaper that outlines the potential of ONDC and its alignment with India’s Digital Public Infrastructure (DPI).
ONDC Framework: Enabling Seamless Commerce
- The ONDC framework leverages India’s Digital Public Infrastructure (DPI) to facilitate seamless commerce interactions.
- ONDC aims to promote open networks developed through open-source methodologies.
- The project seeks to combat digital monopolies by creating a platform for all online retailers, based on standardized open specifications and network protocols.
Understanding Open-Source
- Open-source projects allow for the free use, study, modification, and distribution of the project for any purpose.
- ONDC’s open-source approach could potentially impact operational aspects like seller onboarding, vendor discovery, price discovery, and product cataloguing.
Significance of Open-Sourcing
- Open-sourcing a process involves making its code or steps freely available for use, redistribution, and modification.
- Implementing ONDC’s open-source processes could level the playing field for smaller online retailers and new entrants.
ONDC’s Objectives: Countering Digital Monopolies
- ONDC aims to digitize value chains, standardize operations, and enhance efficiency, benefiting stakeholders and consumers.
- Digital monopolies, dominated by e-commerce giants, are being challenged by ONDC, aligned with India’s draft e-commerce policy.
ONDC Processes and Government’s Move
- ONDC streamlines processes like seller onboarding, vendor and price discovery, and product cataloguing.
- The Indian government’s move is spurred by the need to reduce foreign companies’ control over the domestic e-commerce ecosystem.
Evolution and Challenges of Digital Commerce
- The whitepaper charts the evolution of digital commerce in India, highlighting the hurdles faced in its early stages.
- Challenges like resistance from major e-commerce players and MSME compliance burdens must be addressed.
- Challenges included concerns about security, trust, and the perceived value of digital transactions.
- ONDC’s framework addresses these challenges, offering agility, security, and profitability simultaneously.
ONDC’s Impact across Industries
- Deloitte India emphasized ONDC’s potential to empower various industries.
- ONDC’s vision aligns with India’s growth trajectory, shifting power towards consumers and small and medium enterprises (SMEs).
- The framework’s unique proposition bridges gaps in value chains, fosters innovation, and streamlines interactions.
Agriculture and ONDC
- ONDC has transformative implications for the agriculture sector.
- It provides farmers direct access to buyers, eliminating intermediaries.
- Farmers Producer Organisations (FPOs) can establish direct connections with potential clients, enhancing value chain optimization.
- This integration benefits various stakeholders, including mandis, corporations, traders, hospitality establishments, and farm-to-table start-ups.
Unlocking Commerce Potential
- While India’s digital commerce sector is projected to touch $350 billion by 2030, e-commerce currently constitutes only about 4.3% of retail commerce.
- ONDC’s innovative approach is poised to drive higher participation in digital commerce, optimizing value chains, and accelerating sector growth.
Conclusion
- The Open Network for Digital Commerce (ONDC) is set to redefine India’s digital commerce landscape.
- The framework’s alignment with India’s Digital Public Infrastructure (DPI) and its potential to foster seamless interactions across industries hold great promise.
- ONDC’s agility, security, and profitability features make it a catalyst for innovation and economic growth.
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e-Commerce: The New Boom
Centre puts norms against ‘Dark Patterns’ in Online Ads
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Dark patterns advertising
Mains level: Read the attached story
Central Idea
- The Department of Consumer Affairs (DoCA) and the Advertising Standards Council of India (ASCI) have joined forces to tackle unethical advertising practices in India.
- Within the next two months, the authorities plan to release guidelines to combat dark patterns in Indian advertising.
Understanding Dark Patterns
- Dark patterns are manipulative marketing techniques that deceive customers through unethical practices.
- They encompass a wide range of tactics, including creating false urgency, employing subscription traps, and sneaking items into the checkout basket, using disguised advertising, and manipulating prices during checkout.
Types of dark patterns advertising
- Disguised ads: Presenting advertisements in a way that makes them look like regular content or organic recommendations, deceiving users into engaging with promotional material unknowingly.
- False urgency: Creating a sense of urgency by displaying countdown timers, limited-time offers, or stock availability to pressure consumers into making quick decisions without fully considering their options.
- Sneak into basket: Adding additional products or services to the shopping cart without the user’s explicit consent or knowledge, often through pre-selected checkboxes or hidden options.
- Hidden costs: Concealing or downplaying additional fees, charges, or subscriptions until the final stages of the checkout process, misleading consumers about the actual cost of a product or service.
- Confirm-shaming: Using manipulative language or guilt-tripping tactics to pressure users into taking a specific action they may not want to, such as subscribing to newsletters or sharing personal information.
- Roach motel: Making it easy for users to sign up for a service but intentionally creating barriers or complexities when they try to cancel or unsubscribe, making it difficult for them to leave.
Consequences of such ads
Dark patterns can lead to unintended purchases, addiction and overuse of products or services, and privacy violations.
- Unintended purchases: Dark patterns can manipulate consumers into making purchases they did not intend to make, leading to unnecessary expenses and financial strain.
- Addiction and overuse: Some dark patterns are designed to create addictive behaviors, keeping consumers engaged with a product or service beyond what is healthy or necessary.
- Privacy violations: Dark patterns may deceive consumers into unknowingly sharing sensitive personal information, compromising their privacy and leaving them vulnerable to data breaches or identity theft.
- Psychological manipulation: Dark patterns exploit cognitive biases and psychological vulnerabilities to manipulate consumer behavior, leading to decisions that are not based on informed choices but rather on emotional manipulation.
Why discuss this?
- Rapid growth of the Indian online space: The substantial expansion of the online sector in India raises concerns about the potential harm caused by dark patterns.
- Dominance of digital platforms: With digital platforms becoming the primary source of information, goods, and services for consumers, the manipulation of UI/UX design and online choice architecture can significantly impact consumer well-being.
Industry’s Role in Self-Regulation
- Importance of self-regulation: The consensus among stakeholders is that self-regulation within the industry is crucial to effectively address and counter dark patterns.
- Sectors to self-regulate: Various sectors, including online shopping, e-ticketing, restaurants, and travel, can adopt self-regulatory measures.
Way forward
- Providing tools for informed choices: Stakeholders suggested equipping users with browser extensions that can help detect and block dark patterns, enabling them to make more informed decisions.
- Encouraging reporting: Users are encouraged to report instances of dark patterns, and efforts will be made to raise awareness among small and medium-scale merchants about these deceptive practices.
- Consensus on self-regulation: All stakeholders unanimously agreed that industry self-regulation plays a pivotal role in countering deceptive online practices and protecting consumers’ interests.
- Commitment to consumer protection: The meeting concluded with a commitment to continue exploring ways to counter dark patterns and safeguard consumer rights and interests.
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e-Commerce: The New Boom
Orders on ONDC grow rapidly
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Open Network for Digital Commerce (ONDC)
Mains level: Read the attached story
Central Idea
- The Open Network for Digital Commerce (ONDC) is a government-backed modular network for e-commerce, food and grocery delivery, and cabs in India.
- ONDC has witnessed significant growth, with a rising number of orders and participants.
- India Post, one of the world’s largest logistics systems, is expected to join ONDC, strengthening the network.
About ONDC
- The ONDC is a private non-profit Section 8 company established by the Department for Promotion of Industry and Internal Trade (DPIIT) of the Government of India.
- It aims to develop open e-commerce by creating a set of specifications designed to foster open interchange and connections between shoppers, technology platforms, and retailers.
- It was incorporated on December 31, 2021, with an initial investment from Quality Council of India and Protean eGov Technologies Limited (formerly NSDL e-Governance Infrastructure Limited).
What does one mean by ‘Open-sourcing’?
- Free for all: An open-source project means that anybody is free to use, study, modify and distribute the project for any purpose.
- Open licensing: These permissions are enforced through an open-source licence easing adoption and facilitating collaboration.
What processes are expecting to be open-sourced with this project?
- Several operational aspects including onboarding of sellers, vendor discovery, price discovery and product cataloguing could be made open source on the lines of Unified Payments Interface (UPI).
- If mandated, this could be problematic for larger e-commerce companies, which have proprietary processes and technology deployed for these segments of operations.
What does the DPIIT intend from the project?
- ONDC is expected to-
- Digitize the entire value chain,
- Standardize operations,
- Promote inclusion of suppliers,
- Derive efficiencies in logistics and
- Enhance value for stakeholders and consumers
Processes in the ONDC
- Seller Onboarding: Sellers can register and onboard their businesses onto the ONDC platform.
- Vendor Discovery: Buyers can discover relevant vendors and sellers on the ONDC network.
- Price Discovery: Transparent marketplace for comparing prices across sellers.
- Product Cataloguing: Sellers can create and manage catalogues of their products on the platform.
- Transaction Processing: Secure and seamless payment infrastructure for completing purchases.
- Order Fulfillment: Coordinating delivery or provision of purchased products or services.
- Customer Support: Assistance for addressing queries and concerns of buyers and sellers.
- Data Management and Security: Robust practices to protect user data and ensure security.
Why such a move by the govt?
- Digital boom: This COVID pandemic has made every business to go digital. India is a country with 700 million internet users of whom large crunch of population are active buyers on e-coms.
- Promoting competition: ONDC aims to foster a more competitive marketplace by providing opportunities for small retailers and businesses.
- Fostering inclusivity: It seeks to enable small retailers to access a wider customer base, promoting inclusivity in the digital commerce ecosystem.
- Curbing monopolistic practices: ONDC addresses potential monopolistic behavior and rent-seeking tendencies by certain e-commerce platforms.
- Enhancing efficiency: By streamlining operations and standardizing processes, ONDC aims to drive efficiencies in the digital commerce ecosystem.
- Digital Public Infrastructure: ONDC is part of the government’s efforts to build and support essential digital services and infrastructure.
- Government support: The government’s involvement in ONDC demonstrates its commitment to supporting small businesses and advancing digital transformation.
Scope for ONDCs success
- Government backing: ONDC is a government-backed initiative, indicating strong support and resources from the government to drive its success.
- Inclusive approach: ONDC aims to create a level playing field for small retailers and businesses, empowering them to compete with larger e-commerce platforms.
- Industry expertise: The drafting panel of ONDC includes experienced individuals from various sectors, bringing diverse perspectives and expertise to the table.
- Successful track record: India has previously executed successful public digital platforms like UPI and Aadhaar-linked projects, demonstrating the country’s capability in implementing digital initiatives.
- Open-Sourcing approach: The open-sourcing of processes within ONDC can foster innovation, collaboration, and widespread adoption, similar to the success of UPI.
- Growing digital market: India has a large population of internet users, making it a thriving market for digital commerce. ONDC can tap into this market and capitalize on the increasing adoption of online services.
- Potential for disruption: ONDC’s entry into the digital commerce ecosystem can disrupt existing players and bring about positive changes, offering more choices and opportunities for businesses and consumers.
Issues that can be raised
- EODB concerns: They may raise hues over operability and ease of doing business.
- Compliance burden: MSMEs have already raised the growing compliance burden for e-commerce.
Other challenges
- Every platform has its own challenges so would the ONDC may have.
- While UPI was ruled out (BHIM being the first) people were reluctant in using it due to transaction failures.
- With subsequent improvements and openness people and businesses are using it in every walks of life. So it would work with ONDC.
Conclusion
- While challenges may exist, the combination of government support, industry expertise, and the aim to create a more inclusive and competitive digital commerce landscape provides a strong foundation for the success of ONDC.
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e-Commerce: The New Boom
Regulating the Big Techs and competition in the market
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Competition Commission of India
Mains level: Issues of big techs market dominance, use, store and transfer consumer data
Context
- The Indian anti-trust body, the Competition Commission of India (CCI)’s move, in October, to impose a penalty of ₹1,337.76 crore on Google for abusing its dominant position in the android mobile device ecosystem, has forced us, once again, to rethink the market power of Big Tech companies.
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Background: Acknowledging the big tech company’s market distorting abilities
- India did not account for network effect of big techs: When India established the CCI under the Indian Competition Act 2002, it was to protect and promote competition in markets, and prevent practices that hinder competition. However, it did not account for the network effect of Big Tech companies as a force to reckon with.
- Countries are realised their market dominance and moved to transform competition law: As their market dominance increased rather exponentially, the European Union, the United States, and even Australia realised their market-distorting abilities and moved to transform their competition law.
- For instance, European union’s Digital market Act: The EU’s Digital Market Act and “gatekeepers” who will enforce rules and regulations ex-ante to foresee anti-competitive practices is an example.
Competition Commission of India
- CCI is the competition regulator in India.
- It is a statutory body responsible for enforcing The Competition Act, 2002 and promoting competition throughout India and preventing activities that have an appreciable adverse effect on competition in India.
- It was established on 14 October 2003. It became fully functional in May 2009.
Big techs and the Market dominance issue
- Market dominance is natural but gets hazy when its abused: In any free economy, market dominance is natural but things get hazy when it is abused to prevent competition.
- Google’s case: As the CCI says, the intent of Google’s business was to make users on its platforms abide by its revenue-earning service, i.e., an online search to directly affect the sale of their online advertising services. Thus, network effects, along with a status quo bias, created significant entry barriers for competitors to enter or operate in the markets concerned.
- Fundamental role of pricing and as a determinant of competition: Predatory pricing entails the lowering of prices that forces other firms to be out competed. Amazon and Flipkart were accused of deep discounting and creating in-house brands to compete with local sellers. Only recently, the CCI raided their offices in an anti-competition probe, leading to Amazon being forced to cut its ties with Cloudtail.
- Consumers consent has no value: A crucial aspect of self-preferencing beyond the search algorithms is the bundling of services, especially with pre-installed apps, where the manufacturers eliminate competition without the consumer’s consent. Apple is facing heat in the U.S. and Europe over pre-installed apps after Russia forced Apple to provide third-party apps at the time of installation.
Use of data, issue of consumer protection
- Big techs self-asserted right to use, store and transfer consumers data: While the data economy has evolved, we have not dealt with its regulation as effectively. There is sensitive data stored on these platforms (financial records, phone location, and medical history). Big corporations have asserted ownership of the right to use or transfer this data without restriction.
- Data greed as a motivation: While one might attribute it to efficiency barriers, the greed for data is a motivation. Further, the storage and collection of women’s and children’s data need to be dealt with more cautiously to build a safe digital place.
- Market distortions lead to data monopoly and poor quality of services: Market distortion can also lead to poorer quality of services, data monopoly, and stifle innovation.
Steps to ensure a level playing field and consumer protection in the age of digital transformation?
- Urgent to need to prevent market failures and mitigate possible anti-competitive act: While the competition laws address that anomaly, they are too slow to respond in complex technical sectors. By the time an order is passed, the dominant player has gained an edge — as in the case of Google. Thus, in this context, there is an urgent need for ex-ante legislation to prevent market failures and mitigate possible anti-competitive conduct.
- Harmony of the competition law and e-commerce rule: For a consumer, there is a need to establish harmony of the Competition law with the new Consumer Protection Act 2020 and e-commerce rules. The new law should include a mechanism to ensure fair compensation for consumers who face the brunt of the anti-competitive practices of the Big Techs. This should ensure that the penalties and restrictions being imposed on companies also ensure proportionate compensation for consumer losses.
- Ensure a level playing field for local sellers: Pricing plays a fundamental role in defining the position of any digital platform in the marketplace. It is essential to establish an ex-ante framework to ensure a level playing field for local sellers. The Government’s Open Network for Digital Commerce (ONDC) platform is a reliable option for these small players.
- New laws and provisions for digital marketplace: There is an urgent need to contextualise the law to the digital marketplace and devise new provisions with adequate ex-ante legislation. The EU has already noted this need through the Digital Markets Act. It is time that similar legislation is adopted in India.
Prelims shot: What is “ONDC”?
- Open Network for Digital Commerce (ONDC) seeks to promote open networks, which are developed using the open-source methodology.
- The project is aimed at curbing “digital monopolies”.
- This is a step in the direction of making e-commerce processes open-source, thus creating a platform that can be utilized by all online retailers.
- They will encourage the usage of standardized open specifications and open network protocols, which are not dependent on any particular platform or customized one.
Conclusion
- Witnessing the big tech’s ability of market distortion, data monopoly and market dominance, Country’s competition laws need to be vigilant through an ex-ante framework to ensure highest consumer protection. With India now on the cusp of a digital transformation, it is essential that the country a level-playing field to ensure a fair opportunity for new-age start-ups and Micro, Small and Medium Enterprises.
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e-Commerce: The New Boom
Centre sets ‘standard’ for product Reviews on E-Commerce Platforms
Note4Students
From UPSC perspective, the following things are important :
Prelims level: NA
Mains level: Fake and deceptive reviews on E-commerce platforms
The Centre is bringing out a standard for publishing product reviews for e-commerce platforms this week.
What are the reviews on e-com platforms?
- Reviews are the ratings given by customers who make any purchase on the e-commerce platform.
- This is generally a star-rating system followed by user comments.
- It is particularly a social proof given by people who make judgments and decisions based on the collective actions of others.
Why do e-coms take such reviews?
- Reviews are much more than just comments and can result in relevant content and information, both for you and your customers.
- Since the biggest disadvantage of e-commerce is not offering the possibility for consumers to be face to face with the product, reviews can break this barrier.
- Reviews can help sell more, gain new customers, accompany the consumer’s satisfaction, and target better.
Why reviews matter?
- Ensure a good purchasing experience;
- Create surveys and debates on products and/or services;
- Provide a field for comments and instigate interaction;
- Know how to deal with complaints and try to resolve them.
Why discuss this?
- Consumer grievances ignored: More than one in two (58 per cent) consumers complain that their negative product ratings and reviews are not being published by e-commerce platforms.
- Positive bias: Only 23 per cent consumers said that their negative reviews or ratings on e-commerce sites were published as it is.
- Fake and deceptive reviews: Wasteful products are highly publicised with fake reviews and praises.
What are the standards set out by the govt.?
The framework for the standard was prepared by the Bureau of Indian Standards (BIS). It is titled IS 19000:2022. The outlines are-
- Guiding principle: The guiding principles of the standard are integrity, accuracy, privacy, security, transparency, accessibility and responsiveness.
- Voluntary compliance: To start with voluntary, the standard could become mandatory after observing compliance to the standards by such platforms.
- Grievance redressal: Once made mandatory, a consumer may submit grievances to the National Consumer Helpline, Consumer Commissions, or the CCPA, against misleading reviews.
- Punishment: If made mandatory, the violation of the standard, can invite punishment for unfair trade practice or violation of consumer rights.
- Review authentication: The standard prescribes specific responsibilities for the review author and the review administrator. For the review author, these include confirming acceptance of terms and conditions, providing contact information.
- Consumer data protection: For review administrator, these include safeguarding personal information and training of staff.
- Traceability and genuineness of the review author: The standard also provides for methods for verification of the review author through email address, identification by telephone call or SMS, confirming registration by clicking on a link, using captcha system.
Significance of the standards
- The standard is expected to benefit all stakeholders in the e-commerce ecosystem, that is, consumers, e-commerce platforms, sellers, etc.
- It will help usher in confidence among consumers to purchase goods online and help them take better purchase decisions.
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e-Commerce: The New Boom
Online Dispute Resolution in new-age digital commerce
Note4Students
From UPSC perspective, the following things are important :
Prelims level: ONDC
Mains level: Paper 3- Online Dispute Resolution
Context
Despite the rapid advancement of digital platforms on the one hand and the pervasiveness of the Internet-enabled phone on the other, small enterprises such as local kirana stores have not gained from this. Online purchases from “near and now” inventory from the local store remain in a digital vacuum.
Online revolution in country
- Increased smartphone use: The rise in smartphone use fuelled by affordable data plans has catalysed an online revolution in the country.
- Pandemic accelerated digital inclusion: The novel coronavirus pandemic has further accelerated the process of digital inclusion.
- It is now not only routine to transact online it is also common to learn online, have medical consultations online, and even resolve disputes online.
- Increased scope for innovation in digital space: These realisations have given India the opportunity to disrupt the status quo with its innovative abilities.
- Systems such as the Unique Identification Authority of India (UIDAI) and Aadhaar, the Unified Payments Interface (UPI) and the Ayushman Bharat Digital Mission have reengineered markets.
Why mall and medium sided businesses have not benefited from digital revolution?
- Despite the rapid advancement of digital platforms small enterprises such as local kirana stores have not gained from this.
- Cost of infrastructure: This is because, to sell on numerous platforms, sellers must maintain a separate infrastructure, which only adds costs and limits participation.
- Distinct terms and conditions of platforms: The distinct terms and conditions of each platform further limit the sellers’ flexibility.
- Consequently, small and medium-sized businesses have lost their freedom to choose and participate in the country’s e-commerce system at their will and on their terms.
Way forward: Open Network for Digital Commerce
- The Department for Promotion of Industry and Internal Trade (DPIIT) of the Government of India established the Open Network for Digital Commerce (ONDC) to level the playing field by developing open e-commerce and enabling access to small businesses and dealers.
- The ONDC began its pilot in five cities in April 2022, i.e., New Delhi, Bengaluru, Coimbatore, Bhopal and Shillong.
- Currently, the pilot has expanded to 18 cities, and there are immediate plans to add more cities.
- The ONDC network makes it possible for products and services from all participating e-commerce platforms to be displayed in search results across all network apps.
- For instance, a consumer shopping for a product on an e-commerce app named “X” would also receive results from e-commerce app named “Y”, if both X and Y integrated their platforms with the ONDC.
Dispute resolution through ODR
- Disputes will be the obvious by-product of this e-commerce revolution.
- Therefore, it is imperative to support this initiative with a modern-day, cost-effective, timely and high-speed dispute resolution system.
- Online Dispute Resolution, or ODR as it is popularly called, has the propensity to work alongside the incumbent setup and deliver quick, affordable and enforceable outcomes.
- The ODR is not restricted to the use of legal mechanisms such as mediation, conciliation and arbitration in an online environment but can be tailormade for the specific use case keeping the participants in mind.
- ODR commonly involves case management systems, integration of communication technologies such as email, SMS, WhatsApp, Interactive Voice Response, audio/video conferencing.
- With appropriate data sets in place, it can also involve advanced automation, the use of technologies such as artificial intelligence and machine learning to enable resolutions at the same time as it would take to initiate a transaction over the network.
- Many e-commerce companies have turned to the ODR with the realisation that in order to maximise transactions it is important to ensure a positive dispute resolution experience.
- Adoption in India: The ODR is no more a distant dream for India as well.
- The National Payments Corporation of India (NPCI) has mandated platforms in the UPI ecosystem to adopt the ODR for complaints and grievances connected to failed transactions.
- Ingram, SEBI SCORES (or the Securities and Exchange Board of India SEBI COm plaints REdress System), RBI CMS (or the Reserve Bank of India Complaint Management System), MahaRERA (or the Maharashtra Real Estate Regulatory Authority), MSME Samadhaan (or the Micro Small and Medium Enterprises Delayed Payment Monitoring System), and RTIOnline (or the Right to Information Online) are other examples of ODR systems that are widely used in the country.
- Mitigating litigation risks: The ODR will help mitigate litigation risk and provide valuable insights into problems faced by consumers.
- Consumers are provided with another choice for effective redress of their grievances, thereby building trust, confidence and brand loyalty.
Advantages of ONDC
- Wider choice for consumers: The ONDC achieves the dual objective of wider choice for consumers on the one hand and access to a wider consumer base for sellers on the other.
- With India’s e-commerce industry set to reach $200 billion by 2027, this shift from a platform-centric paradigm to democratisation of the nation’s online market will catalyse the inclusion of millions of small business owners and kirana businesses.
Conclusion
A dispute resolution framework that includes a customised ODR process can play a role in the network achieving its steep five-year target of adding $48 billion in gross merchandise value to India’s e-commerce market, a network of 90 crore buyers and 12 crore sellers with the least hiccups.
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e-Commerce: The New Boom
Government e-Marketplace (GeM) eyes procurement of ₹2 lakh crore
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Government e-Marketplace
Mains level: Read the attached story
Government e-Marketplace (GeM), a national procurement portal, is eyeing annual procurement worth ₹2 lakh crore during FY23. Such a huge amount it is!
Government e-Marketplace
- GeM is an online platform for public procurement in India by various Government Departments / Organizations / PSUs.
- The initiative was launched on August 9, 2016 by the Ministry of Commerce and Industry with the objective to create an open and transparent procurement platform for government buyers.
- It is owned by GeM SPV (Special Purpose Vehicle) which is a 100 per cent Government-owned, non-profit company under the Ministry of Commerce and Industries
- GeM aims to enhance transparency, efficiency and speed in public procurement.
- It provides the tools of e-bidding, reverse e-auction and demand aggregation to facilitate the government users achieve the best value for their money.
- The purchases through GeM by Government users have been authorized and made mandatory by Ministry of Finance.
Note: The government has made it mandatory for sellers on the Government e-Marketplace (GeM) portal to clarify the country of origin of their goods when registering new products.
Advantages for Buyers
- Offers rich listing of products for individual categories of Goods/Services
- Makes available search, compare, select and buy facility
- Enables buying Goods and Services online, as and when required.
- Provides transparency and ease of buying
- Ensures continuous vendor rating system
- Up-to-date user-friendly dashboard for buying, monitoring supplies and payments
- Provision of easy return policy
Advantages for Sellers
- Direct access to all Government departments.
- One-stop shop for marketing with minimal efforts
- One-stop shop for bids / reverse auction on products / services
- New Product Suggestion facility available to Sellers
- Dynamic pricing: Price can be changed based on market conditions
- Seller friendly dashboard for selling, and monitoring of supplies and payments
- Consistent and uniform purchase procedures
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e-Commerce: The New Boom
online marketplace
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- E-commerce regulation issue
Context
The proliferation of a wide range of e-commerce platforms has created convenience and increased consumer choice. However, these platforms also have given rise to several concerns as well.
What is e-commerce ?
- Electronic commerce or e-commerce is a business model that lets firms and individuals buy and sell things over the Internet.
- Propelled by rising smartphone penetration, the launch of 4G networks and increasing consumer wealth, the Indian e-commerce market is expected to grow to US$ 200 billion by 2026 from US$ 38.5 billion in 2017.
- India’s e-commerce revenue is expected to jump from US$ 39 billion in 2017 to US$ 120 billion in 2020, growing at an annual rate of 51%, the highest in the world.
- The Indian e-commerce industry has been on an upward growth trajectory and is expected to surpass the US to become the second-largest e-commerce market in the world by 2034.
Advantages of e-Commerce
- The process of e-commerce enables sellers to come closer to customers that lead to increased productivity and perfect competition. The customer can also choose between different sellers and buy the most relevant products as per requirements, preferences, and budget. Moreover, customers now have access to virtual stores 24/7.
- e-Commerce also leads to significant transaction cost reduction for consumers.
- e-commerce has emerged as one of the fast-growing trade channels available for the cross-border trade of goods and services.
- It provides a wider reach and reception across the global market,with minimum investments. It enables sellers to sell to a global audience and also customers to make a global choice. Geographical boundaries and challenges are eradicated/drastically reduced.
- Through direct interaction with final customers, this e-commerce process cuts the product distribution chain to a significant extent. A direct and transparent channel between the producer or service provider and the final customer is made. This way products and services that are created to cater to the individual preferences of the target audience.
- Customers can easily locate products since e-commerce can be one store set up for all the customers’ business needs
- Ease of doing business: It makes starting, managing business easy and simple.
- The growth in the e-commerce sector can boost employment, increase revenues from export, increase tax collection by ex-chequers, and provide better products and services to customers in the long-term.
Issues created by the e-commerce sites
- Predatory pricing: These companies resort to predatory pricing to acquire customers even as they suffer persistent financial losses.
- SEBI is rightly revisiting the valuation norms of such companies looking to list on the stock exchange.
- Exclusionary practice: They take away choice from suppliers and consumers.
- This, in the long run, can be viewed as an exclusionary practice that eliminates other players from the market.
- Lack of level playing field: While neutrality is the fundamental basis of a marketplace and a level playing field is in the fitness of things, claims of outfits such as Flipkart or Amazon to be a marketplace for a wide variety of sellers can be questioned.
- A few select sellers, who are generally affiliated with the platform, reap the benefits of greater visibility and better terms of trade — reduced commissions and platform-funded discounts.
- Undue advantage to associated companies: The associate companies are prominent sellers on their platform.
- It is alleged that undue advantage is given while recommending or listing these products.
- Cartelisation: Online travel aggregators are often accused of cartelisation.
- Information asymmetry: The aggregators gather shopping habits, consumer preferences, and other personal data.
- The platforms are accused of using this data to create and improve their own products and services, taking away business from other sellers on their platform.
- They capitalise on this data and information about other brands to launch competing products on their marketplace.
- This information asymmetry is exploited by the aggregators to devour organisations they promise to support.
- Problems in dispute resolution mechanism: Another issue often noticed is the lack of a fair and transparent dispute resolution mechanism for sellers on these platforms.
- Delayed payments, unreasonable charges, and hidden fees are common occurrences.
- Unreasonable and one-sided contracts allow travel aggregators to have a disparity clause (in the rates) which allows them to offer rooms at a much cheaper rate but bars the hotels from doing so.
Impact of the e-commerce
- The online aggregator platforms have also damaged large segments of small and medium businesses through their dominant position and the malpractices this position allows them to indulge in.
- The ultimate loss bearer is the consumer who will have a reduced bargaining position.
Way forward
- Comprehensive rules: It is time that a set of comprehensive rules and regulations is put together.
- These regulations need to be inclusive, should eliminate the conflicts of interest inherent in current market practices, and prevent any anti-competitive practices.
- Model agreement: A model agreement that is fair and allows a level playing field between the aggregators and their business partners should be implemented.
- Learning from EU act: There is a lot to learn from the Digital Markets Act of the EU that seeks to address unfair practices by these gatekeepers.
- Need for dispute resolution mechanism: Strong and quick grievance redressal and dispute resolution mechanisms should be established.
- Punitive penalties: The rules should allow for punitive penalties for unfair practices.
- Fair competition rules: Market dominance and subsequent invoking of fair competition rules should be triggered at the level of micro-markets and for product segments.
Conclusion
The nature of our success in dealing with this change will lie in the ways in which we deal with the concerns of all players.
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e-Commerce: The New Boom
How predatory pricing is affecting distributors and traders
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Predatory pricing issue
Context
Consumer goods distributors in Maharashtra has been protesting against Colgate’s alleged unfair treatment of traditional distributors vis-à-vis B2B (Business-to-Business) technology companies such as Reliance’s JioMart, Udaan and others.
The disruption caused by B2B companies
- Nearly half-a-million of India’s distributors pick up goods from consumer companies such as Colgate and deliver them to 13 million small local stores located in 7,00,000 villages and towns across the country through a web of millions of traders and other intermediaries.
- Enter the new age technology B2B companies.
- They have developed technologies to connect directly to the kirana store through a mobile phone app, bypassing the intermediaries.
- They supply goods to the local store for lower prices than the charged by the distributor.
- Unable to match such prices and facing the peril of losing business, India’s distributors claim these are unfair practices and want manufacturers such as to stop supplying goods to the technology companies.
Issue of disruption caused by the pricing power and predatory pricing
- Creative destruction: New innovations disrupting an existing process and rendering incumbents futile is generally a healthy process of ‘creative destruction’, as the Austrian economist, Joseph Schumpeter, postulated.
- But this disruption in India is driven not entirely by technology innovation but also through pricing power.
- These technology companies bear the loss on the products they sell to the local store.
- Further, they offer extensive credit terms and working capital to the local stores.
- In other words, these technology companies rely not just on their mobile phone app innovation but also steep price discounting and cheaper financing to win customers.
- Evidently, these companies use the money to not only build new technologies but also to undercut competitors and steal market share.
- This practice, called predatory pricing, is illegal in most countries including India.
- These companies are supplied with funds from foreign venture capital firms, which in turn are largely funded by American pension funds and university endowments.
- The flip side is that India’s millions of distributors and intermediaries have no access to such finance.
- These small companies are cut off from the endless stream of free foreign money that gushes into new age ‘startups’ and established large corporates.
Problems created by predatory pricing
- While consumers may benefit from lower prices, the livelihoods of millions of distributors, traders and their families suffer.
- To be sure, this is not just an India problem but a global one.
- Social media companies such as Facebook give away their products for free and e-commerce companies such as Amazon sell at lower prices, benefiting consumers enormously, but also causing immense social strife and disharmony.
- But in India’s case, there is an added complexity of foreign capital flows.
- Access to this capital is only available to a tiny proportion of Indian businesses but threatens the livelihoods of millions of Indian families, as in the case of distributors, causing massive income and social disparities.
- This unequal access to capital creates leads to anti-competitive behaviour.
Consider the question “What is predatory pricing? What are the issues created by predatory pricing?”
Conclusion
To be clear, this is not a Luddite argument against e-commerce or technological innovations. The issue is about illegal predatory pricing and abuse of pricing power by startups and big corporates through preferential access to easy foreign money.
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e-Commerce: The New Boom
What is Q-Commerce Model?
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Q-Commerce Model
Mains level: E-commerce boom in India
Online grocer Grofers has rebranded itself “Blinkit”, in line with its new focus on “quick commerce”, which essentially involves delivering customer orders much faster than it does currently.
Q-Commerce Model
- Q-commerce (‘quick commerce’) – sometimes used interchangeably with ‘on-demand delivery’ and ‘e-grocery’ – is e-commerce in a new, faster form.
- It combines the merits of traditional e-commerce with innovations in last-mile delivery.
- The premise is largely the same, with speed of delivery being the main differentiator. Delivery is not in days but minutes – 30 or less, to be competitive.
- This has in turn expanded the breadth of what individuals can order, with perishable goods – like groceries – being a large niche q-commerce companies speak to.
- It tends to focus on the micro – smaller quantities of fewer goods.
Features of this model
- Countering pandemic: The supply chain disruptions triggered by the Covid-19 pandemic led to the emergence of a new sub-vertical in the online grocery segment.
- Quickest delivery: It is the unique selling proposition (USP) of which was the promise of delivery within 10-30 minutes of ordering.
- Micro-warehousing : The focus of most of these ventures is on setting up micro-warehouses located closer to the point of delivery, and of restricting stocks of high-demand items.
Back2Basics: Marketplace and Inventory-Based Model
(1) Marketplace Model
- It provides an IT platform by an e-commerce entity on a digital & electronic network to act as a facilitator between the buyer and seller. Ex. India Mart, Amazon, Flipkart.
- The e-commerce firm does not directly or indirectly influence the sale price of goods or services and is required to offer a level playing field to all vendors.
(2) Inventory-Based Model
- Inventory based model of e-commerce means an e-commerce activity where the inventory of goods and services is owned by an e-commerce entity and is sold to the consumers directly.
- Ex. Alibaba
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e-Commerce: The New Boom
How ONDC seeks to democratize digital commerce?
Note4Students
From UPSC perspective, the following things are important :
Prelims level: ONDC Project
Mains level: Read the attached story
The department for the promotion of industry and internal trade (DPIIT) in the ministry of commerce and industry is building an open network for digital commerce (ONDC), designed to curb digital monopolies and standardize the onboarding of retailers on e-commerce sites.
What does the ONDC aim to achieve?
- The Unified Payment Interface (UPI) has disrupted the digital payments domain. ONDC seeks to achieve something similar for e-commerce.
- It aims to “democratize” digital commerce, moving it away from platform-centric models like Amazon and Flipkart to an open network.
- ONDC may enable more sellers to be digitally visible. The transactions will be executed through an open network.
- The system may empower merchants and consumers.
- It will eventually touch every business, from retail goods and food to mobility.
How would ONDC work?
- The ONDC is still work in progress and the details are not public.
- But what we know so far is the network may make it easier for a small retailer to be discovered.
A boon for retailers
- Once a retailer lists its products or services using the ONDC’s open protocol, the business can be discovered by consumers on e-commerce platforms that follow the same protocol.
- A consumer searching for the product can see the location of the seller and opt to buy from the neighbourhood shop that can deliver faster compared to an e-commerce company.
- This may promote hyperlocal delivery of goods such as groceries, directly from sellers to consumers.
What are the next steps?
- A private sector-led non-profit unit will be set up to fast-track its roll-out.
- It is expected to provide a startup mindset enabled by a management with a futuristic vision, deep understanding of commerce and comfort with cutting edge technology.
- A non-profit company structure removes any incentive for profit maxi-mization,
- It would keep focus on ethical and responsible behaviour while providing for trust, rigorous norms of governance, accountability and transparency.
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e-Commerce: The New Boom
India’s gig economy
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Regulation of Gig Economy
Since the pandemic, there is a growing concern about the pay-out and job-securities of the delivery persons and other gig workers of the e-commerce companies.
E-com boom in India
- E-commerce in India is a nascent industry that is probably less than 13 years old.
- In this short period, it has captured the collective imagination of the nation.
- The covid-19 crisis has accelerated its adoption, and even die-hard fans of shopping at a physical store have switched to shopping online.
Various issues faced by the gig workers
- Harsh working conditions
- Quality of work and the temporary nature of engagement
- Absence of a social security net
- Long hours
- Delayed pay-outs
- Pressure to maximize speed of delivery (at the risk of road accidents)
E-coms under scanner
The bigger an industry gets, and the more successful it is perceived to be, the more responsible and thoughtful it needs to be in everything it does.
- Fairness in employment: Some of the concerns are fair and call for introspection on the part of e-commerce companies.
- Premature regulation: There is a rising demand for regulation of the gig economy created by them.
Significance of e-commerce sector
Anyone complaining about the quality of jobs being created by the e-commerce industry probably needs to spend some time understanding the history of job creation in India.
An attractive sector for India’s ‘jobs problem’
- Ample workforce: India is a demographically youthful nation, and every year between 17 and 20 million people look for jobs.
- Attractive sector: This includes around 5 million people who are abandoning highly exploitative and less remunerative farm jobs every year to find employment in other sectors, mostly in the nearest urban districts.
- Limited success of service sector: The IT and business process outsourcing industry has less than 200,000 jobs a year during its 25 years of existence. This is just a minuscule 1% of the total number of jobs that need to be created.
Data justifying un-steady flow of income
- According to CSO, only about 17% of India’s workers are regular wage earners and less than 23% of Indian households have a regular wage earner.
- In other words, 77% of our households did not have a steady flow of income.
- Self-employed (46%) and casual labour (33%) together account for nearly 80% of the workforce and claimed to earn less than ₹10,000 per month.
- These are the realities that cannot be ignored.
E-commerce: A game-changer
- The new-age platforms have done is nothing short of a miracle both in terms of creating jobs as well as paying a fair wage.
- It can be well established that it has provided a better remedy for unemployment in India.
Why do e-marketplaces matter?
- Failure of Skills: Neither skill nor knowledge is enough to ensure one generates income.
- Technology dependency and free market: Efficient marketplace which are enabled by technology, matters.
- Common platform: A startup such as the Urban Company is an example of a technology-powered marketplace for common services such as plumbing, carpentry, beauty, and house-cleaning, among others.
- Single marketplace: They brought consumers and suppliers of services (based on skills) on a common platform and made the whole process of matching demand and supply pretty seamless.
Benefits offered
- Decent pay: A consumer of a service is willing to pay more for better quality of service if there is a consistent and reliable process of evaluating the capability of service providers.
- Self-employment: Most of these workers are always self-employed and even with these platforms, they operate in a gig mode which isn’t structurally different.
- Better livelihood: Youth from rural India had been joining the Ola and Uber platforms in large numbers, many of whom were either unemployed or heavily under-employed.
- No skill-compulsion: When skilling is voluntary and driven by a free market mechanism, the outcomes are magical.
- Industrializing the services: These platforms did ‘industrialize’ the services—industrialization allowed effortless consumption and created structured mechanisms to scale services and service capabilities.
- New consumption pattern: The technology enabled markets resulted in ‘new consumption’ which, in turn, led to creation of more goods and service providers.
Way forward
- As far as the e-commerce industry is concerned, there are several obvious lessons that can contribute towards its growth, going ahead.
- Also it is not fair to paint the entire industry as exploitative or be unduly critical of the gig model which is actually a very good model.
- Many of the gig workers themselves would be reluctant to take up full time and fixed salaried jobs. Pushing for premature regulation could be lethal.
- And finally, it is unrealistic to expect the e-commerce industry to create jobs that are probably as well paying like the IT industry.
Conclusion
- Creating high-paying jobs was never easy and will never be easy.
- Nor is it realistic that everyone, or even a majority of the 20 million, will be employed in high-paying jobs.
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e-Commerce: The New Boom
Open Network for Digital Commerce could disrupt India’s e-commerce space
Note4Students
From UPSC perspective, the following things are important :
Prelims level: ONDC
Mains level: Paper 3- Advantages and challenges in the Open Network for Digital Commerce project
Context
The Department for Promotion of Industry and Internal Trade (DPIIT) recently issued orders appointing an advisory committee for its Open Network for Digital Commerce (ONDC) project.
About ONDC project
- The Open Network for Digital Commerce (ONDC) project aims to make e-commerce processes open-source.
- In simple terms, it aims at creating a platform that can be utilised by all online retailers.
- This is another effort by the government to facilitate the creation of shared digital infrastructure, as it has previously done for identity (Aadhaar) and payments (Unified Payments Interface).
- It will digitise e-commerce value chains, standardise operations, promote inclusion of suppliers, and derive efficiencies in logistics.
What are its advantages?
- Level playing field: When done well, this approach can level the playing field and create value for users.
- Curb monopoly: The market is dominated by a few players who are facing investigations for unfair trade practices in many countries.
- Prevent market failure: The sector is characterised by many small players who individually do not have the muscle to have an equitable bargain with e-commerce companies.
- Economists call this a “market failure”, and it presents a legitimate case for intervention.
The three layers of an open digital ecosystem and their conceptual framework for adoption and safeguards
1) Tech layer
- The “tech layer” should be designed for minimalism and decentralisation.
- The government should restrict its role to facilitating standards and protocols that provide open access, and in getting them adopted organically.
- Building an entire tech platform should happen only if a standards-based approach doesn’t suffice.
- If built, the platform should be built on “privacy by design” principles.
- It should collect minimal amounts of data (especially personal data) and store it in a decentralised manner.
- Tools like blockchain could be used to build technical safeguards that cannot be overridden without active consent.
2) Governance layer
- Avoid excessive government intervention: The “governance layer” around this should allay business fears of excessive state intervention in e-commerce.
- Legal provision: Any deployment of standards or tech should be accompanied by law or regulation that lays out the scope of the project.
- Independent regulator for personal data: If collection of any personal data is required, passing the data protection bill and creating an independent regulator should be a precondition.
- Handling by independent society: To assure the industry of fairness, the government could hand over the stewardship of the standards or platform to an independent society or non-profit.
3) Community layer
- A community layer can foster a truly inclusive and participatory process.
- This may be achieved by making civil society and the public active contributors and seeking wide feedback on drafts of the proposal.
- Once the framework is implemented, ensuring quick and time-bound redressal of grievances will help build trust in the system.
Concerns with government creating shared digital infrastructure
- This approach also comes with risks and we should tread with caution.
- In general, governments should intervene in markets only when there is a clearly identifiable market failure or massive societal benefits from creating shared infrastructure.
Way forward
- The government’s championing of open-source technology for digital commerce is commendable.
- It should also push the envelope on the other principles of the open-source movement — transparency, collaboration, release early and often, inclusive meritocracy, and community.
- Even if we do all things right, an infrastructure-led approach may not be sufficient.
- Therefore, we need to supplement infrastructure with tightly-tailored regulation.
- We need to explore the concept of interoperability, that is, mandating that private digital platforms like e-commerce firms enable their users and suppliers to solicit business on other platforms.
- To drive the adoption of an open e-commerce platform in a sector with entrenched incumbents we need to create “reference applications”, and financial or non-financial incentives.
- Useful learnings can be drawn from the adoption of UPI: The government supported the rollout of BHIM as a reference app, and offered incentives.
Consider the question “How the Open Network for Digital Commerce project can help deal with the issues with the e-commerce sector? Suggest the approach the project should adopt to make it a success.”
Conclusion
It is timely that India is exploring innovative ways to bridge the gaps in e-commerce markets. But the boldness of this vision must be matched by the thoughtfulness of the approach.
Back2Basics: What is ‘Privacy by Design?
- Privacy by design is a concept that integrates privacy into the creation and operation of new devices, IT systems, networked infrastructure, and even corporate policies.
- Developing and integrating privacy solutions in the early phases of a project identifies any potential problems at an early stage to prevent them in the long run.
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e-Commerce: The New Boom
The proposed e-commerce rules shield vested interests
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Inventory model vs marketplace model
Mains level: Paper 3- Issues with regulation of e-commerce
Context
The proposed Consumer Protection (E-Commerce) Rules, 2020, have been drafted ostensibly in the name of the consumer. The rules are driven more by the desire to shield the traditional brick-and-mortar stores, and handicap e-commerce firms, especially the foreign ones.
Issues with the provisions of draft Consumer Protection (E-Commerce) Rules, 2020
1) Fall-back liability clause is unfair for those operating through marketplace model
- Under this provision, e-commerce entities will be liable in case suppliers on the platform fail to deliver the goods to consumers, causing them a loss.
- E-commerce firms in India operate through either the inventory model or the marketplace model.
- As FDI is permitted only in the marketplace model.
- Under the marketplace model, e-commerce platforms don’t hold inventory, but simply connect buyers and sellers.
- Foreign players typically operate through this model.
- Considering that these platforms exercise little or no control over the inventory under this model, how can they be held liable for the sellers’ actions.
2) Identifying goods based on country of origin and providing fair opportunity to domestic sellers
- The draft rules also require e-commerce platforms to identify goods based on their country of origin.
- And when goods are being viewed for purchase by consumers, the rules also mandate platforms to provide suggestions to ensure “fair opportunity” for domestic sellers.
- This raises the question as to why the Make in India campaign is being pushed through the Consumer Protection Act.
- Surely, if domestic manufacturers are competitive, consumers will automatically gravitate towards them.
- Interests of consumers, not domestic manufacturers, should be at the core of the consumer protection framework.
3) Overlapping/competing jurisdictions
- Data protection: The draft rules have sought to safeguard consumer data by restraining e-commerce firms from sharing consumer data without consent.
- But the data protection should be governed by the provisions under the Personal Data Protection Bill and not the Consumer Protection Act.
- Considering the graded approach that is likely to be adopted under the Data Protection Bill, an e-commerce user’s data could be classified as per its vulnerability and be left under the jurisdiction of the data protection authority.
- Dominant position: The rules also state that e-commerce entities are prohibited from abusing their dominant positions in the market.
- The “abuse of dominant position” has been given the same meaning as that prescribed under Section 4 of the Competition Act, 2002.
- This will open the scope for new consumer protection authority to enter into issues of abuse of dominant position — the domain of the Competition Commission of India.
Consider the question “Over-regulation tends to curb competition and create monopolies instead of ensuring its holistic growth dovetailed with fair competition. In light of this, examine the issues with the draft Consumer Protection (E-Commerce) Rules, 2020?”
Conclusion
The lines of demarcation that have been drawn up in the retail landscape — single brand vs multi-brand, online vs offline, domestic vs foreign — serve only to protect powerful vested interests, not benefit the consumer as is often proclaimed.
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e-Commerce: The New Boom
A regulatory hurdles could stifle e-commerce
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Regulation of e-commerce sector
The article highlights the risk of stifling the e-commerce sector due to the government’s propensity for its regulation to protect the local traders.
Efforts to shield local retailers
- India began to open up its economy three decades ago, but efforts to shield local retailers resulted in a retail sector fraught with a thicket of rules.
- With the web’s reach expanding rapidly, online retail is expected to grab a fast-widening slice of a pie placed at above $880 billion last year and projected at $1.3 trillion in 2024.
- Such a huge opportunity has set the stage for a grand e-com confrontation, with our two biggest business houses gearing up to take on a duopoly of US-based Amazon and Walmart-owned Flipkart.
- The more fiercely e-com is contested, the tighter this sector’s straps seem to get.
What are the new regulations?
- The Centre put out proposals to tighten e-com regulations for consumer protection.
- E-com firms must appoint resident officers to address grievances and monitor rule-compliance, and then be ready to share information sought by authorities within 72 hours.
- For the sake of “free and fair competition”, they must label all wares on their websites by country-of-origin, offer local alternatives, keep search results unbiased, not sell anything to anyone registered as a ‘seller’ with them, not conduct deep-discount flash sales of cherry-picked products.
- Restriction on aiding associated enterprises with any helpful data gleaned by their algorithms.
- As another measure to assure small enterprises an even field, they must also ensure that their logistical systems support all sellers in the same category equally.
- As it happens, this attempt to straitjacket e-com platforms coincides with an antitrust probe of ‘unfair practices’ ascribed to Amazon and Flipkart.
Issues with regulations
- Some of these sound too vague and subjective to adopt.
- Even if clear criteria are specified for their adoption and they actually serve to curtail brand favouritism, they would leave e-com majors with too little autonomy to devise strategies of service differentiation for a competitive edge.
- The perception of e-com majors being bullies, however, does not seem very widely shared among their customers, few of whom complain of either insufficient rivalry or choice deprivation online.
Conclusion
What e-com users are now at risk of suffering, though, is a hobbled industry. If all e-com websites are forced into a statist mould meant for generic market platforms, these companies could lose their ability to set themselves apart, outperform rivals and serve the market’s ultimate cause.
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e-Commerce: The New Boom
[pib] Amendments to the Consumer Protection (E-commerce) Rules, 2020
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Consumer Protection (E-commerce) Rules, 2020
Mains level: Not Much
For the purposes of preventing unfair trade practices in e-commerce, the Central Government had notified the Consumer Protection (E-Commerce) Rules, 2020 with effect from 23 July 2020.
Consumer Protection (E-commerce) Rules, 2020
The proposed amendments aim to bring transparency in the e-commerce platforms and further strengthen the regulatory regime to curb the prevalent unfair trade practices.
The proposed amendments are as follows:
(a) Chief Compliance Officer
- To ensure compliance of the rules, the appointment of Chief Compliance Officer, a nodal contact person for 24×7 coordination with law enforcement agencies, officers to ensure compliance to their orders and Resident Grievance Officer for redressing of the grievances of the consumers on the e-commerce platform, has been proposed.
- This would ensure effective compliance with the provisions of the Act and Rules and also strengthen the grievance redressal mechanism on e-commerce entities.
(b) Registration of e-coms
- Putting in place a framework for registration of every e-commerce entity with the DPIIT for allotment of a registration number which shall be displayed prominently on the website as well as invoice of every order placed by the e-commerce entity.
- This would help create a database of genuine e-commerce entities and ensure that the consumers are able to verify the genuineness of an e-commerce entity before transacting through their platform.
(c) Prohibition of miss-selling
- The goods and services entities selling goods or services by deliberate misrepresentation of information have been prohibited.
(d) Expiry dates
- This would ensure that consumers are aware of the expiry date of the products they are buying on the e-commerce platform.
- It compels all sellers on marketplace e-commerce entities and all inventory e-commerce entities to provide the best before or use before the date to enable consumers to make an informed purchase decision.
(e) Fair and equal treatment
- It has been provided that where an e-commerce entity offers imported goods or services, it shall incorporate a filter mechanism to identify goods based on country of origin and suggest alternatives to ensure fair opportunity to domestic goods.
(f) Fall-back liability
- This would ensure that consumers are not adversely affected in the event where a seller fails to deliver the goods or services due to negligent conduct by such seller in fulfilling the duties and liabilities.
Why need such an amendment?
It was observed that there was an evident lack of regulatory oversight in e-commerce which required some urgent action.
- Manipulating search results: Moreover, the rapid growth of e-commerce platforms has also brought into the purview the unfair trade practices of the marketplace e-commerce entities engaging in manipulating search result to promote certain sellers.
- Preferential treatment: This includes preferential treatment to some sellers, indirectly operating the sellers on their platform, impinging the free choice of consumers, selling goods close to expiration etc.
- Flash sales: Certain e-commerce entities are engaging in limiting consumer choice by indulging in “back to back” or “flash” sales. This prevents a level playing field and ultimately limits customer choice and increases prices.
Check this PYQ from CSP 2012:
Q. With reference to consumer’s rights / privileges under the provision of law in India which of the following statements correct?
- Consumer are empowered to take samples for food testing
- When consumer fi les a complaint in any consumer forum, no fee is required to be paid.
- In case of death of consumer, his/her legal heir can file a complaint in the consumer forum on his/her behalf.
Select the correct answer using the codes given below:
(a) Only 1
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
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e-Commerce: The New Boom
Towards digital Atmanirbharta
Note4Students
From UPSC perspective, the following things are important :
Prelims level: FDI restrictions on e-commerce
Mains level: Paper 3- FDI in e-commerce
We need a comprehensive FDI policy on trade to take care of the needs of all the stakeholders. The article highlights the issues faced by the e-commerce sector in relation to the FDI policy.
E-commerce as an enabler
- With their efficient, quick and reliable logistics network, e-commerce platforms have nudged consumer behaviour patterns from an offline to an online shopping mode.
- During the pandemic, e-commerce emerged as an enabler in ensuring the availability of essentials to the masses.
- E-commerce is going to be increasingly important in the future of retail shopping in India and the world over.
- It is estimated to become a $100 billion industry by 2024, which was at $38.5 billion until 2017.
- The trend will continue to grow with the government’s impetus on digital literacy, also supported by the increasing penetration of internet and smartphone users.
- However, what the sector lacks is the bandwidth of operation.
Issues with FDI policy for e-commerce
- In addition to the FDI Policy/FEMA, other laws such as IT Act, Consumer Protection Act, and those pertaining to IP and copyright, regulate the e-commerce sector in India.
- Of these, the FDI policy plays an important role as massive investments are needed to build and strengthen the entire ecosystem of the e-commerce sector in the country.
- FDI policies on trade have evolved over time as policy-making was done from time to time mostly responding to the needs of the market coupled with political feasibility.
- Thus, FDI policy in cash and carry or wholesale B2B operations is different (100 per cent FDI allowed under automatic route) compared to highly restrictive FDI policy on retail B2C trade.
- Similarly, an artificial distinction was created between single-brand retail and multi-brand retail as opposition to multi-brand retail was strong: 100 per cent FDI is allowed under automatic route in single-brand retail whereas FDI regime in multi-brand retail is quite restricted.
- E-commerce is not allowed under FDI policy in multi-brand retail.
- The FDI policy on e-commerce is quite different as e-commerce platforms are allowed to work only as a marketplace with permission to provide certain specified services to sellers and buyers.
- However, FDI is allowed in the inventory model when these platforms sell fresh farm produce made in India.
- There is no specific policy on FDI in e-commerce for exports.
Need for comprehensive FDI policy for trade
- The rapid expansion of the retail, organised retail as well e-commerce sector in India in the coming years will create huge opportunities for all.
- The policies that have evolved over time need a relook to balance the interests of all in a win-win policy.
- Today, our small businesses employing an exceptionally large number of workers need to use e-commerce more and more to augment their sales.
- E-commerce provides them with the means to access a much bigger market without having to overly invest in marketing. This should include more and more foreign markets.
- Consumers have benefited enormously from e-commerce.
- Also, the harmonious working of online and offline retailers is essential.
- With GST and the drive towards digitisation, more small traders need to be enabled to make the transition and take advantage of the expanding opportunities.
Consider the question “Why e-commerce sector is important for the economy of a country? What are the issues the sector faces in India?”
Conclusion
Public policy on e-commerce needs to place an equal premium on the views and interests of all the stakeholders in the ecosystem to strengthen our domestic businesses and create many more jobs and livelihood opportunities in the country to fulfil the dreams of Atmanirbhar Bharat.
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e-Commerce: The New Boom
E-commerce policy is needed for speedy, inclusive growth
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Significance of e-commerce sector for India
The article highlights the untapped potential of the e-commerce sector in the transformation of the Indian economy and suggests factors to take into account in the new e-commerce policy.
How pandemic contributed to the growth of e-commerce
- A celebrated McKinsey study has revealed that we have covered a ‘decade in days’ in the adoption of digital during the pandemic.
- Behavioural changes have been witnessed in most areas like work, learning, health, travel, entertainment, etc.
- But the biggest surge has been in e-commerce, both in goods and services.
Significance of the sector for India
- E-commerce is one of India’s fastest-growing sectors, for attracting FDI and creating jobs, and providing a pan-India market for lakhs of SMEs, and facilitating exports.
- India has a vibrant retail sector, bubbling with energy and a bright future.
- E-commerce can rope in lakhs of MSMEs in cross-border trade and multiply turnover and revenues enormously.
- Its role in facilitation of exports with linkages and access to overseas markets can also help inject competitiveness in our products and creating a lot of jobs and market opportunities, adding to inclusive growth.
Issues faced by the sector
- The digital interface during e-commerce processes with multiple agencies has resulted in a plethora of compliances.
- These compliances include Income Tax Act 1961, Information Technology Act 2000, Consumer Protection Act 2019, FEMA Act 2000, Competition Act 2002, Companies Act 2013, Anti-Piracy Law, GSTN, DGFT, etc.
- In addition, handling, generation and protection of humongous data is a major issue under data protection laws.
- At times, there are requirements of compliances with various local and state laws, and during exports, adherence to foreign laws, many of which could be quite complex and rigorous.
E-commerce policy to aid Inclusive growth
- Inclusive growth being an important objective of the proposed e-commerce/FDI policy, it should recognise and support new business models in both product and service segments.
- The policy should be aimed at improving consumer experience and providing gainful employment to regular and gig workers with improved earnings.
- India, in fact, is the first country to extend protections to workers including the new-age gig and platform workers, which is being viewed with interest globally.
- With the passage of the Code on Social Security 2020, policymakers have focused on financial and social security associated with employment to contemporary socio-economic realities.
- The role of platform workers amidst the pandemic has presented a strong case to attribute a more robust responsibility to platform aggregator companies and the State.
- This has cemented their role as public infrastructures who also sustain demand-driven aggregators and e-commerce platforms.
- This role of the platform workers may help in higher productivity and more sustainable employment, when many of them could potentially become mini-entrepreneurs.
- This, however, would need to be facilitated by concerned public and private institutions as also the multiple regulators in the e-commerce ecosystem.
- In an online services market place and to provide full support to regular and gig professionals rendering services on the platform, it must be imperative on the service platform to build their capacity through training, technology and access to high-quality consumables and tools.
Consider the question “Examine the role e-commerce can play in India’s pursuit of inclusive growth? What are the issues faced by the sector in India?”
Conclusion
We are in for exciting times, as we enter this decade, rightly called the ‘Techade’; 2020 has accelerated technology infusion in all segments of life and activity. The world is looking at India with expectations and we owe it to our nation.
Source: https://www.financialexpress.com/opinion/e-commerce-policy-needed-for-speedy-inclusive-growth/2226729/
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e-Commerce: The New Boom
How e-commerce marketplaces can drive MSME makeover
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- E-commerce to aid MSMEs
Facilitating manufacturing through MSMEs
- A significant major contributor to the India growth story is going to be manufacturing.
- Manufacturing by small units, cottage units and MSMEs, if effectively facilitated, will be the game changer.
- For MSMEs to be sustainable and effective, the need of the hour is not just better automation but also more channels for accessing greater markets and opportunities to become a part of the national and global supply chains.
- E-commerce marketplaces are today the best possible enablers for this transformation at minimal cost, innovation and investment.
Need to invest in digital transformation and technology
- China captured the world market through the traditional method of having guilds and business centres.
- Today, digital empowerment is the key differentiator.
- Without that, our MSMEs will not be future ready.
- E-commerce allows products even from hinterlands to get to the national market, thus, providing opportunities to artisans and small sellers from Tier-2/3 towns to sell online to customers beyond their local catchment.
- By investing in supply chains, the e-commerce sector provides opportunities for MSMEs to partner them in supply and delivery networks.
- Start-ups and young brands are also finding opportunities to build national brands and even going global.
- This leads to additional income generation through multiple livelihood opportunities.
- Many offline stores are also adopting e-commerce to leverage these opportunities and the traditional and modern retail models are moving towards more offline and online collaborations.
Challenges in building robust e-commerce sector
1) No GST threshold exemption
- Sellers on e-commerce marketplaces do not get advantage of GST threshold exemption (of Rs 40 lakh) for intra–state supplies.
- Online suppliers have to “compulsorily register” even though their turnover is low.
- Offline sellers enjoy this exemption up to the turnover threshold of Rs. 40 lakh.
2) Principal place of business issue
- Today, the sellers, as in offline, are required to have a physical PPoB which, given the nature of e-commerce, is not practical.
- The government would do well to simplify the “Principal Place of Business” (PPoB) requirement especially for online sellers by making it digital.
- Replace physical PPoB with Place of Communication.
- Eliminating the need for state specific physical PPoB requirement will facilitate sellers to get state-level GST with a single national place of business.
3) Support MSMEs to understand e-commerce
- MSMEs should be provided with handholding support to understand how e-commerce functions.
- The government can collaborate with e-commerce entities to leverage their expertise and scale to create special on-boarding programmes.
- These can be provided by state governments.
- There is need to examine the existing schemes and benefits for MSMEs, which were formulated with an offline, physical market in mind.
4) Build infrastructure
- There is a need to build infrastructure — both physical and digital infrastructure is important for digital transformation.
- The road and telecom network will facilitate access to the consumer and enable the seller from remote areas to enter the larger national market as well as the export market.
- A robust logistic network and warehouse chains created by e-commerce platforms enable similar access and reach.
- The National Logistics Policy should focus on e-commerce sector needs.
5) Skilling policies for e-commerce sector
- Dovetail the skilling policy and programmes with the requirements of the e-commerce sector to meet future demand of the sector.
6) Steps to increase export via e-commerce
- We need to take specific steps to increase exports via e-commerce.
- There is a need to identify products that have potential for the export market, connect e-commerce with export-oriented manufacturing clusters, encourage tie-ups with sector-specific export promotion councils, leverage existing SEZs to create e-commerce export zones.
- India Posts can play a significant role by creating e-commerce specific small parcel solutions at competitive rates, building a parcel tracking system, and partnering with foreign post offices to enable customs clearances.
Way forward
- There is an urgent need to create a consolidated policy framework for e-commerce exports.
- Policies like the upcoming Foreign Trade Policy needs to be fully leveraged.
- The Foreign Trade Policy should identify areas and include e-commerce export specific provisions in the revised policy that comes into effect in April this year.
Consider the question “E-commerce marketplaces can help MSMEs in accessing greater markets and provide opportunities to become a part of the national and global supply chains. In light of this, examine the opportunities provided by e-commerce also mention the challenge the sector faces in India.”
Conclusion
By facilitating and supporting e-commerce, we can leverage the potential of MSMEs in manufacturing which could help in the economic growth of the country by creating job opportunities.
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e-Commerce: The New Boom
Draft E-Commerce Policy
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not Much
Mains level: E-commerce regulation in India
The Department for Promotion of Industry and Internal Trade (DPIIT) will soon come out with a common acceptable draft e-commerce policy.
Earlier policy
- The previous draft in July last year had proposed a regulator, an e-commerce law, periodic audit of companies that store or mirror Indian users’ data overseas.
- The latest draft calls for streamlining of regulatory processes to ease the burden of compliance for activities related to e-commerce and regulations for data that will provide for sharing mechanism.
What are the provisions of the new law?
Data Usage
- According to a revised draft, the government would lay down principles for the usage of data for industrial development, where such norms do not already exist.
- They aim to put in place safeguards to prevent misuse and access of data by unauthorized persons.
- Such safeguards may include regulating the cross-border flow of data pertaining to Indians and transactions taking place in India and the requirement of adequacy audits to be carried out by Indian firms.
- As per the recent draft policy, violation of safeguards shall be viewed seriously and attract heavy penalties.
Regulation, exports
- Conformity assessment procedures will be put in place to verify that goods and services sold on e-commerce platforms meet required standards and technical regulations.
- The government shall collect information from e-commerce platforms to aid it in making necessary decisions.
- In order to ensure that e-commerce is not used to defraud customers, registration with an authority identified by the Government shall be mandatory.
- The policy shall bring e-commerce exports on par with non-e-commerce exports by enabling online grant of drawbacks, advance authorization and GST refund.
Consumer protection
- As per the draft, e-commerce operators must ensure to bring out clear and transparent policies on discounts, including the basis of discount rates funded by platforms.
- Such a move aims to ensure fair and equal treatment.
- It said consumers have a right to be made aware of all relevant details about the goods and services offered for sale including country of origin, value addition in India etc.
- In case the seller fails to establish the genuineness of his products within a reasonable time frame, the e-commerce platform shall delist the seller.
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e-Commerce: The New Boom
E-commerce rules 2020
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Types of e-commerce model
Mains level: Paper 3- Rules to regulate the e-commerce
The article analyses the various restrictions under The Consumer Protection (E-Commerce) Rules, 2020 to regulate all commercial transactions and issues with such restrictions.
Context
- The recent rules relating to e-commerce, issued by the ministry of consumer affairs, food and public distribution, under the Consumer Protection Act, 2019 needs some changes.
What the recent rules specify
- The Consumer Protection (E-Commerce) Rules, 2020, notified on July 23, regulate all commercial transactions sold over a digital or electronic network.
- The e-com rules currently recognise two e-commerce business models, namely, marketplace model and inventory-based model.
- The rules have separate specified provisions for marketplace- and inventory-based entities.
- The e-com rules require that all information on the return, refund, exchange, warranty and guarantee, delivery and shipment of the goods or services being sold, including their country of origin, be provided on the platform.
- Such details enable consumers to make an informed decision.
What the new rules seek to achieve
- The country of origin requirement is significant as India and several other countries are currently re-negotiating their free trade agreements.
- E-com rules prohibit unfair trade practices by entities and sellers on marketplaces and manipulation of price.
- The entities are prohibited from manipulating the price of the goods or services to gain unreasonable profit by imposing unjustified price or charges on consumers.
Issues with the rules
- It remains unclear as to what would constitute price manipulation.
- It also remain unclear how the e-commerce entities and sellers are expected to navigate these roadblocks without falling foul of such provisions.
- Both the marketplace entity and sellers are now required to set up a grievance redressal mechanism, small businesses may not be in a position to comply.
- The rules also prohibit an e-commerce entity from levying a charge for cancellation post confirmation.
- While the provisions may be intended as safeguards that ensure a level-playing field, some of these conditions are impractical.
- Applying identical rules does not convey a business-friendly approach.
Investment restrictions
- The Foreign Exchange Management (Non-debt Instruments) Rules, 2019 currently recognise the marketplace and inventory model.
- It permit 100% FDI under the automatic route to marketplace entities as also to those engaged in single-brand retail.
- Foreign investments, up to 51%, are permitted in multi-brand retail with prior government approval.
- As per the non-debt rules, entities engaged in single-brand retail are permitted to undertake retail trading through e-commerce.
- However, single-brand retail trading through e-commerce has to open a brick-and-mortar store within two years from the date it commences online retail.
- Retail trading, in any form, by means of e-commerce, is not permissible for entities engaged in inventory-based multi-brand retail trading and having foreign investment.
Consider the question “What are the objectives sought to be achieved through The Consumer Protection (E-Commerce) Rules, 2020 to regulate commercial transactions? What are the issues with the rules?”
Conclusion
The commercial sector is anxious for India to consider relaxing some of these requirements, or extending the time period for compliance, given that brick-and-mortar operations may not be possible in the foreseeable future.
Source-
https://www.financialexpress.com/opinion/e-commerce-rules-a-one-size-fits-all-approach-some-need-to-be-relaxed/2071953/
Back2Basics: Invenetory model and marketplace model
- Marketplace model of e-commerce means providing of an information technology platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller.
- The main feature of the market place model is that the e-commerce firm like flipkart, snapdeal, amazon etc. will be providing a platform for customers to interact with a selected number of sellers.
- Inventory model of ecommerce means an ecommerce activity where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly.
- The main feature of inventory model is that the customer buys the product from the ecommerce firm.
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e-Commerce: The New Boom
Disintermediation from E-commerce
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Disintermediation
Mains level: Paper 3- Duopoly in e-commerce in India
E-commerce was expected to provide the level playing field. However, Indian e-commerce has been experiencing the duopoly and new entrant faces several difficulties.
What is disintermediation
- The emergence of the internet was seen as a tool for marketers to reach consumers directly.
- The term disintermediation meant taking intermediaries out of the loop.
- The aim was efficiency.
- It was hoped that without local stockists and distributors in between, retail demand could be fulfilled at lower cost.
- After all, anyone could put up a website and woo traffic.
What is the issue?
- Today, the gains of online market addressal have converged into the hands of a few big winners in a winner-takes-all scenario.
- Getting an app onto handsets often involves a toll paid to e-gatekeepers.
- These apps created an entry barrier for the new entrants.
- So far, single-brand apps have mostly failed, regardless of price baits.
- After all, it is hard to beat the convenience of a single-touch window that lets shoppers load e-carts with all their needs.
Conclusion
E-com was once about snipping out distribution networks. With market access cornered by pioneers, now others want to get past these intermediaries. Only blockbuster apps can do it.
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e-Commerce: The New Boom
‘BharatMarket’: An e-commerce platform for retail traders
Note4Students
From UPSC perspective, the following things are important :
Prelims level: BharatMarket
Mains level: Not Much
Traders’ body Confederation of All India Traders (CAIT) said that it will soon launch a national e-commerce marketplace ‘BharatMarket’ for all retail traders in collaboration with several technology partners.
A prelims question with tricky options to throw you off track-
The BharatMarket initiative recently seen in news is-
A. Trade of Bharat-22 Exchange Traded Fund (ETF)
B. Platform for farmer to sell their produce
C. Initiative in power sector
D. e-commerce platform
Here you have to play safe…..
BharatMarket
- The marketplace will integrate the capabilities of various technology companies to provide end-to-end services in the logistics and supply chains from manufacturers to end consumers, including deliveries at home.
- It will include nationwide participation by retailers and aims to bring 95 per cent of retail traders onboard the platform, who would exclusively run the portal.
- It has been already started as a pilot project, initially with a limited number of essential commodities, in six cities — Prayagraj, Gorakhpur, Varanasi, Lucknow, Kanpur and Bengaluru.
- This will be an effective way to get essential commodities to consumers during the lockdown period and within containment zones.
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The recent changes in e-commerce sector
DIPP recently notified a new FDI policy for e-commerce and certain other rules <What exactly e-commerce is? Answer in comments>
What are the rules?
- 100% foreign direct investment is permitted in the marketplace model of e-commerce
- FDI is not permitted in inventory based model of e-commerce
Additional to these rules for FDI, the other rules are:
- An e-commerce entity may provide logistic, warehousing , order fulfilment, call centre, payment collection and other services
- An e-commerce entity will not permit more than 25% of the total sales should not be done by one vendor or its group companies
- The seller shall be responsible for post sales, warranty and guarantee of goods sold by it
- The e-commerce entity will not directly or indirectly affect the sale price of goods or services while maintaining a level playing field
What does it mean?
Now let’s analyse its impacts on various stakeholders, one-by-one
#1. E-Commerce Players
- Price determination- This is a grey area with unclear rules. One interpretation could be that Govt will determine the price and not the market. This could upset the markets
- Clearly defining the models- This is a positive development. The marketplace and inventory based models are now concretely and clearly defined by law
- Group companies- Group companies (Flipkart- WS Retail, Amazon- Cloudtail) are created to work around the e-retail rule which doesn’t allow FDI in B2C multi-brand retail
The companies will now have to figure out a new way to scale down sales through their group companies
- Discounts- The rule in itself is notvery clear as it doesn’t explictly spell out the terms ‘deep discounting’ or ‘discount’
Example- Amazon uses the term ‘promotional funding’ to describe its discounting model, and as is clear, technically doesn’t affect the actual price of the product
Even though the note says the rules are effective immediately, discounting has continued as is. It shows that that this is still a grey area
- Inventory based models- This model, which is effectively under multi brand retail, remains out of the FDI route
#2. The Consumer
- E-commerce companies have brought in deep competition in the retail sector by way of offering discounts
- How are the discounts funded? Part of this is funded through a cash burn, and part through operating efficiencies over the brick and mortar setup <What is cash burn? Answer in comments>
- Restraints on discounts, if workout in real, consumers will lose a lot of power in terms of price and choice
#3. Brick and Mortar Players
- Effects on brick and mortar retailers will depend on how the restraints on discount work out
- Footfalls in Brick & Mortar retail had dropped dramatically, and the pricing change may now draw consumers back
- However, e-commerce companies and strong retailer lobbies will obviously work to keep their dominance
Conclusion:
- Overall, the move is in the right direction, but it lacks strength and complete clarity on various issues (such as pricing, discounting)
- The grey area in pricing is very open to interpretation, especially on the point of determining the right price, and could be an anti-market move
- Retail sectr still remains affected by a lot of interest groups and a solid policy change to actually reform retail remains
After this, you can read this story for more insights- Disrupting the disruptors (The Hindu)
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