Not surprisingly therefore, a Bain & Company report from late last year, values India’s e-commerce retail sector at US$50 billion, representing a growth of 25% from 2021. It further projects the sector to grow to US$150-170 billion by 2027 – riding on the back of increased digital adoption by consumers and MSMEs.
Clearly, the growth of MSMEs through strategies that leverage online e-commerce, presents a winning proposal for the country. However, growth in the sector, brought with it concerns around consumer protection, in light of increased adoption of online retail by consumers. While recent proposals to deal with cases of fraudulent e-commerce sellers through a “fall-back liability” on marketplaces may seem reasonable at first glance, they carry the inevitable risk of stalling MSME growth, without addressing the issue of fraudulent/ defective sales.
Counterintuitive nature of fallback liability
Typically, online marketplaces do not hold inventory (or in the case of online marketplaces subject to the FDI Policy – cannot hold inventory). In other words, marketplaces do not have any control over the products sold by participating sellers. They merely act as “intermediaries” between sellers and end users, enabling them to prioritize investments towards onboarding a wider set of sellers, and creating a robust and optimised logistics and fulfilment infrastructure. The fact that online retail platforms qualify as “intermediaries” who should be safeguarded from liability on account of third-party operators (such as sellers) is expressly recognized under the Information Technology Act, 2000. The IT Act’s approach is in line with globally accepted norms, and was a conscious decision to encourage the propagation of the digital economy.Given this context, a “fallback liability” which makes online marketplaces responsible for losses incurred by an end-user, on account of a seller’s negligence in product delivery or sale, would be akin to holding a shopping mall responsible for sales made by retailers that operate in the mall. If this modification to the existing e-commerce regulations comes to pass – not only, would it hamper the growth of online retail, it would deal a significant blow to MSMEs that rely on marketplaces to reach customers.
Impact of fallback liability on MSMEs
MSMEs ideally choose online retail platforms for selling their products as it provides them with various economic and logistical benefits. MSMEs enjoy the choice of placing their products on multiple online marketplaces, allowing them to cater to a larger customer base. Even small-scale sellers which do not have the considerable resources and infrastructure, host their products on online marketplaces and enjoy benefits like supply-chain and logistical support. Through various devoted initiatives like payment training programs, e-commerce entities encourage the onboarding of small-scale sellers onto their platform.The introduction of a “fall-back liability” can have a domino effect – exclude MSME and small-scale sellers from these benefits as well as the larger digital economy. Given the scale at which online marketplaces operate, with millions of products, and small and medium sellers listed on their platforms – it is simply not feasible for these marketplaces to ensure that every product sold on their platform is defect-free and that every seller is financially responsible – despite extensive due diligence.
Faced with the prospect of an otherwise avoidable “fallback liability”, marketplaces as well as consumers may adopt risk averse strategies that limit their engagement to large sellers having the resources to shoulder consumer liability and ensure adherence to product quality parameters. This would directly impact millions of MSMEs and small sellers currently leveraging e-commerce retail to integrate themselves into the digital economy, and also reduce the product selection and choices available to consumers.
Moreover, introducing such liability would do little to address the problem of bad actors on online marketplaces. Shielding fraudulent sellers from liability through a “fallback liability” on marketplaces, would effectively incentivise bad actors to “game” the framework – thereby amplifying biases against small sellers, even if they provide a superior product experience and are bona fide players in the online retail space.
Upturning well-established principles of online safe harbours and liability, can impact the growth of the digital economy, and block out MSMEs from capitalizing on the e-commerce growth momentum – in addition to severely worsening the ease of doing business in India. It is therefore imperative that the authorities make further deliberations before taking a step that could potentially reverse the growth which the MSME sector and India’s digital economy landscape has witnessed over the last couple of years.
The writer is Retd. IAS, Former Secretary to the Government of India and Secretary General, FIRST.
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