In a move that is a big blow to the e-tailers, the government has decided to ban e-commerce companies such as Amazon and Walmart-owned Flipkart from selling their own goods and selling products by companies in which they have an equity interest. Moreover, the government has also put an end to deep discounts and cashback schemes.
“An entity having equity participation by e-commerce marketplace entity or its group companies, or having control on its inventory by e-commerce marketplace entity or its group companies, will not be permitted to sell its products on the platform run by such marketplace entity,” the commerce ministry said in a statement on Wednesday evening.
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The new rules will be applicable from February 1.
This is a blow to the online retail companies because after this ban they will not be able to offer heavy discounts – one of the main reasons why customers flock to the e-commerce companies.
The new regulations have been announced after complaints from Indian retailers and traders, who say the giant e-commerce companies are using their control over inventory from their affiliates, and through exclusive sales agreements, to create an unfair marketplace that allows them to sell some products at very low prices.
The goods sold on by e-tailers often have a three-tier structure that enables a low pricing formula.
Such products are often sourced through their wholesale units or other group companies. These inturn sell the products to select sellers, such as affiliates or other companies with whom they have agreements. Those sellers then sell the products to other companies or direct to consumers, often at attractively low prices.
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Besides the ban, the government has also announced some other rules for e-commerce companies.
- The government also said that the companies will be prevented from entering into exclusive agreements with sellers. A most recent example of this is the sale of Xiomi phones exclusively on Flipkart.
- Cashback, which is an incentive, should not be based on whether the product was purchased from an affiliate of the platform or not.
- Services provided to vendors on an e-commerce platform and by that entity’s affiliates should be done so at arm’s length and in a fair and non-discriminatory manner.
The All India Online Vendors Association (AIOVA) in October filed a petition with the anti-trust body Competition Commission of India (CCI) alleging that Amazon favours merchants that it partly owns, such as Cloudtail and Appario. The lobby group filed a similar petition against Flipkart in May, alleging violation of competition rules through preferential treatment for select sellers.
Confederation of All India Traders in a statement said that if the order is implemented in full then malpractices, predatory pricing policies and deep discounting by e-commerce players will no longer occur.
CAIT secretary general Praveen Khandelwal said the new rules will put an embargo on the tactics adopted by the global players to control and dominate retail trade in India through e-commerce.
As per the FDI policy, 100 percent foreign direct investment is allowed in business to business (B2B) but not in business to consumer (B2C) commerce.
Under the rules, large online retail firms were classified as B2B because they were earning commission from the vendors who sold goods and services on their platforms.