In India, food and consumer regulators are adopting a unique approach to ensure companies comply with consumer protection laws — leveraging reputational risk rather than relying solely on monetary penalties. This method comes in response to the fact that the existing penalties imposed by regulators are relatively small and insufficient to deter large corporations from flouting consumer laws.

The Regulatory Framework and Its Limitations

India's Food Safety and Standards Authority of India (FSSAI) is responsible for monitoring food standards, while the Central Consumer Protection Authority (CCPA) handles broader consumer issues under the consumer affairs ministry. Both regulators have the legal power to impose fines, but the penalties are capped — FSSAI penalties run into a few lakhs, and CCPA’s maximum penalty is Rs 50 lakh. For large multinational companies and big market players, these fines may not be significant enough to change behaviour.

The Shift to Reputational Risk as a Regulatory Tool

Faced with this challenge, regulators have turned to a strategy of naming and shaming companies in the public domain to nudge better compliance. By publicly calling out companies with unfair practices, the regulators aim to leverage the value of brand reputation and consumer trust as a more powerful deterrent.

For example, the regulators have publicly highlighted issues with dairy makers mislabelling products like paneer, and scrutinised baby food producers for excess sugar content. Similarly, the CCPA has investigated well-known consumer-facing companies such as Uber, Ola, Swiggy, Zomato, and Zepto for alleged consumer law violations.

This approach involves making regulatory findings and actions publicly accessible, thereby creating a significant reputational risk for companies. Since these firms operate in highly competitive, consumer-facing sectors, a loss of consumer trust can translate into a tangible business disadvantage far beyond any monetary penalty.

Government’s Support for the Strategy

Food processing industries minister Chirag Paswan has expressed support for this approach, stating at the Network 18 Powering Bharat Summit that while penalties have their place, the government also aims to "dent their brand names" to prevent companies from endangering public health. This approach seeks to balance industry growth with strong consumer protection.

Legal and Ethical Considerations

While the reputational risk method has proven effective, it also raises questions about legal due process, proportionality, and fairness. Supreme Court advocate Tushar Kumar noted this shift is significant but unconventional, emphasizing that regulatory actions must respect legal sanctity and proportionality.

Similarly, Aviral Kapoor from Alagh & Kapoor Law Offices commented that although public censure can be a stronger motivator than fines, the penalty framework itself should be strengthened for this approach to be sustainable and just.

Examples of Regulatory Action and Public Censure

The government has actively used social media and public platforms to highlight companies’ misconduct. For example, ministers have openly criticized Swiggy, Zomato, and Uber over pricing policies and consumer practices.

Such public naming ensures that companies face not just regulatory penalties but also public scrutiny, encouraging them to uphold higher standards and comply proactively with consumer laws.

Conclusion

In summary, India’s food and consumer regulators are pioneering a shift from purely financial penalties to reputational risk as a regulatory tool. This approach leverages the critical importance of brand image and consumer trust in today’s market, especially for consumer-facing companies. While this strategy poses challenges related to legal principles and proportionality, it has already proven to be an effective way to improve compliance and protect consumers.

As consumer laws evolve, it will be essential for regulators to balance public interest, legal fairness, and industry growth by combining reputational pressure with stronger financial deterrents.

The Upcoming IPOs in this week and coming weeks are 3B Films, N R Vandana Tex Industries, Scoda Tubes,Neptune Petrochemicals, Victory Electric Vehicles International, Wagons Learning.

The Current active IPO are Blue Water Logistics, Astonea Labs, Nikita Papers, Prostarm Info Systems, Aegis Vopak Terminals, Schloss Bangalore.

Start your Stock Market Journey and Apply in IPO by Opening Free Demat Account in Choice Broking FinX.

Join our Trading with CA Abhay Telegram Channel for regular Stock Market Trading and Investment Calls by CA Abhay Varn - SEBI Registered Research Analyst.