The government has tightened rules for ecommerce companies such as Flipkart and Amazon, barring them from selling products of businesses in which they have a stake and laying down new conditions for sale of goods on their platforms.
“An entity having equity participation by ecommerce marketplace entity or its group companies, or having control on its inventory by ecommerce marketplace entity or its group companies, will not be permitted to sell its products on the platform run by such marketplace entity," the government said in a notification on Wednesday.
Under existing rules, an ecommerce entity cannot permit more than 25 percent of the sales value on financial year basis affected through its marketplace from one vendor or their group companies.In Wednesday’s notification, the commerce and industry ministry also said an ecommerce marketplace entity cannot mandate any seller to sell its products exclusively on its platform. Several companies, especially mobile phone makers, prefer selling their products exclusively on a particular ecommerce platform.
The ministry also clarified that the inventory of a vendor will be deemed to be controlled by an ecommerce marketplace entity if more than 25 percent of purchases of such a vendor are from the marketplace entity or its group companies.
Though the current guidelines prohibit ecommerce companies providing a marketplace from exercising ownership or control over the goods that are to be sold, they were silent on the quantum of purchases by a vendor. Ownership or control over the inventory would render the business into inventory based model, the government had stated when it allowed FDI in e-commerce in March 2016.
India allows FDI in marketplace e-commerce companies but bars foreign investment in inventory-based e-commerce companies, where goods sold are owned by the online retailer.
The new changes will come into effect from February 1, 2019.
The changes come in the backdrop of several complaints being flagged by domestic traders on heavy discounts being given by ecommerce players to consumers. The commerce ministry said the notification was a “review” of the FDI policy, and was being undertaken to provide clarity.
Traders are traditional supporters of the ruling Bharatiya Janata Party. India is due to hold general elections early next year.
The commerce and industry ministry said in the notification on Wednesday that services should be provided by an ecommerce marketplace entity, or other entities in which it has direct or indirect equity participation or common control, to vendors on the platform “at arm’s length and in a fair and non-discriminatory manner”. Such services will include but not limited to fulfilment, logistics, warehousing, advertisement/ marketing, payments, financing etc, it said, adding that cashback provided by group companies of marketplace entity to buyers shall be “fair and non-discriminatory”.
The new guidelines have essentially fleshed out existing norms. Under the existing rules, ecommerce entities providing marketplace are prevented from directly or indirectly influencing the sale price of goods or services and must maintain a level playing field.
Wednesday’s notifciation said ecommerce companies will have to file a certificate along with a report of statutory auditor to the Reserve Bank of India, confirming compliance of guidelines by September 30 of every year for the preceding fiscal.
India allowed 100 percent foreign direct investment in marketplace ecommerce companies, which would also be allowed to provide services including warehousing, inventory and payments processing to merchants, in March 2016.
The Confederation of All India Traders (CAIT) welcomed the move and said the clarity on FDI in ecommerce will wipe out confusions and communication gap which was used as a tool by the ecommerce players and multinational companies (MNCs) for playing their own game.
In the wake of foul play of global players in adopting all kind of tactics to control and dominate retail trade of India through ecommerce , today’s clarifications of the government will prove to be an embargo on such practices, said Praveen Khandelwal, general secretary, CAIT.If it is implemented in proper spirit, malpractices and predatory pricing policy and deep discounting of ecommerce players will be a matter of past, he added.