The Nuances of Setting Up an E-commerce Business in India: What One Needs to Know

By Garima Mitra

India’s e-commerce landscape is akin to a thriving ecosystem, evolving at a breakneck pace. It was valued at USD 92.95 billion in 2023, and is projected to reach USD 246.10 billion by 2028, growing at a CAGR of 21.5%. The exponential growth in digital adoption has propelled this sector, marking a paradigm shift in consumer behaviour. Fuelled by technological advancements and a burgeoning middle class, India’s e-commerce market showcases immense potential.

Complementing this growth are government initiatives aimed at fostering a conducive environment for further expansion. Notably, the Foreign Direct Investment (“FDI”) norms have been pivotal in shaping the investment landscape, offering a framework that balances growth opportunities with regulatory considerations. Understanding these dynamics is paramount for anyone venturing into the Indian e-commerce sphere. As this landscape continues to evolve, navigating the nuances of setting up an e-commerce business in India necessitates a comprehensive grasp of the regulatory and market intricacies.

Applicable Legal Framework to E-Commerce Entities

The Information Technology Act, 2000 and the Indian Contract Act, 1872. The Information Technology Act,2000, forms the cornerstone of regulating online conduct and digitally concluded contracts. It recognizes electronically signed contracts and sets standards for online transactions. Coupled with the Indian Contracts Act, it defines the legalities of e-contracts and the obligations between buyers, sellers, and intermediaries.

The Digital Personal Data Protection Act, 2023. The newly enacted Digital Personal Data Protection Act, 2023, brings in a slew of additional compliances to be adhered by an e-commerce business while processing, transferring and storing personal data of its customers, thereby adding an additional layer of security to e-commerce transactions. Additionally, businesses would also be required to update their existing system of obtaining consent from its customers for accessing their personal data in a transparent manner which will explicitly inform the customer of the mode and manner in which, and purpose for which, the collection and use of personal data is being carried out. The Act also sets up a separate mechanism for monitoring personal data of children, and prohibits behavioral monitoring and targeted advertising of children.

Payments and Settlements Systems Act, 2007. E-commerce entities must comply with RBI rules governing payment systems. Obtaining a Nodal Account for settlements, which is a pivotal mechanism ensuring the streamlined settlement of electronic payments, is mandatory for intermediaries handling electronic payments. Intermediaries operating within the e-commerce landscape bear the responsibility of maintaining and utilizing this account, thereby enhancing transparency and efficiency in the financial transactions executed through their platforms. This regulatory requirement not only fosters a secure payment ecosystem but also fortifies consumer trust by ensuring the seamless processing of transactions within the e-commerce sphere.

Sale of Goods Act, 1930 & the Consumer Protection, 2019. The Sale of Goods Act, 1930, outlines sales policies, warranties, and refund conditions, crucial for e-commerce business operations. The Consumer Protection Act, 2019, alongside the Consumer Protection (E-Commerce) Rules, 2020, aim to safeguard consumer rights and prevent unfair trade practices.

The Food Safety and Standards Act, 2006 & the Drugs and Cosmetics Act, 1940. E-commerce business involved in the food and beverages industry, as well as the pharmaceutical and beauty products/cosmetics industry are required to make complete disclosure about composition, ingredients, weight and size of the products to their customers by printing the same on the labels and packaging of the product. Such labeling and packaging need to be in strict conformity with the provisions of the Food Safety and Standards Act, 2006, and the Drugs and Cosmetics Act, 1940. Additionally, e-commerce websites also need to display the above information on their website and/or applications.

Compliance Mandates for E-commerce Entities

Legal Contracts and Privacy Policies. E-commerce platforms must ensure the establishment of legally binding agreements encompassing terms of service, privacy policies, and return policies. These agreements serve as the backbone of consumer trust and provide clarity regarding transactional obligations.

IT Regulations. Mandatory compliance with the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011, is crucial. E-commerce entities functioning as intermediaries are subject to stringent liability and content display norms. Upholding these regulations ensures data security and mitigates risks associated with online content.

Intellectual Property Protection. Protecting intellectual property rights is critical. Securing trademarks and copyrights while vigilantly avoiding infringement is imperative for e-commerce entities. Preventing online intellectual property infringements, such as cybersquatting or copyright violations, demands constant vigilance and proactive measures.

Regulatory Compliance and Financial Obligations.  Adherence to RBI regulations concerning electronic payments, acquiring GST registration, compliance with competition laws, and adherence to Legal Metrology rules are fundamental. These obligations ensure financial transparency, fair competition, and compliance with statutory norms, essential for sustained and lawful operation within the e-commerce landscape.

The Impact and a Glimpse into the Future

India’s burgeoning e-commerce industry in India is transforming the economic landscape. Its growth aids job creation, boosts tax revenues, and fosters technological innovation. Given the steady growth, India is poised to become a global e-commerce powerhouse.

The sector’s influence extends beyond mere economic benefits, empowering micro, small, and medium enterprises (MSMEs) and catalyzing growth across various industries. The anticipated US$1 trillion digital economy by 2030 exemplifies the industry’s potential to revolutionize consumer experiences and reshape India’s economic trajectory.

As the digital revolution continues compliance with evolving regulations remains paramount for sustainable growth and fostering a thriving e-commerce ecosystem in India.

(The author is Garima Mitra, Co-Founder, Treelife, and the views expressed in this article are her own)