Endorsement disclosures

Fine violators, do not jail them

The increasing penetration of smartphones and usage of the internet in India are opening up new opportunities. More and more businesses are trying to leverage the heightened use of technology. They are also stepping up using social media for pushing their products. Besides celebrities whom brands used for advertising on traditional mediums, such as television and print, they are now using social-media influencers. The influencer market is said to be worth Rs 2,800 crore. With the shift in the way businesses are evolving, regulations often have to do a bit of catching up. The government in this context last week issued guidelines for social-media influencers. While the disclosure rules must be welcomed, the punishment for violation has gone too far.
 

Disclosures are important particularly in the case of social media because it’s relatively easy to distinguish an advertisement from other content on other mediums, such as television. The new guidelines have been issued in accordance with the Consumer Protection Act, 2019, which seeks to protect the consumer against misleading advertisements and unfair trade practices. The rules say disclosures should be made promptly and displayed clearly in a manner that makes them “extremely hard to miss”. The disclosure needs to be superimposed in the case of an image in a noticeable way. In the case of video endorsements, they should not be limited to descriptions and need to be placed in the video. Disclosures should be continuously shown in the case of a live stream. This would be applicable to famous personalities, influencers, and virtual influencers — virtual characters generated by people. The connection with advertisers may include monetary or non-monetary compensation, media barter, trips or hotel stay, discounts, gifts, and so on. Disclosures given such prominence would actually be hard to miss for the audience and may not unduly influence their opinion and decision-making.
 

Non-compliance with the guidelines will lead to penalties. Influencers could be fined up to Rs 10 lakh, and for repeated offences the fine can go up to Rs 50 lakh. Violations can also lead to influencers getting debarred and jailed for six months, extending up to two years. The Consumer Protection Act, 2019, has the provision of imprisonment extending up to five years for false or misleading advertisements. While a fine for influencers is understandable as it would discourage violations of rules, a jail term would be too harsh. The government could perhaps increase the fine for successive violations or ban the influencer from endorsements for an extended period. The brand could also be made liable for advertising with celebrities and influencers not making proper discourses.
 

A jail term for such an offence as a violation of endorsement disclosure rules seems contrary to the government’s broader effort to decriminalise economic offences. Fines are likely to work better, and would also help avoid additional pressure on the judicial system. A jail term would inevitably be challenged in courts, which could take significant time and resources, even on the part of the government. Also, to be able to enforce the rules, the government would need significant capacity to oversee a large number of influencers. As a 2022 study showed, stringent rules have not stopped misleading advertisements. The government thus needs a balance between the state capacity and the laws.