Centre tightens e-commerce rules

Indian Government Said to Issue Draft E Commerce Policy in a Few Weeks

Indian Government Said to Issue Draft E Commerce Policy in a Few Weeks

"Inventory of a vendor will be deemed to be controlled by e-commerce marketplace entity if more than 25% of purchases of such vendor are from the marketplace entity or its group companies", the statement said.

The new e-commerce policy could entail provisions for a regulator in the sector dominated by United States tech giant Amazon.com and homegrown Flipkart, which was bought over by retail giant Walmart for $16 billion (roughly Rs. 1.1 lakh crores) earlier this year. It is prohibited in inventory-based model. To curb the practice of deep discounts, the government said they can not directly or indirectly influence the price of goods and services, and also brought in a new set of rules that bar the sale of products exclusively in one marketplace.

The comments came a day after the government appeared to have yielded to demands of domestic traders by putting in place new rules that would practically end discounts and cashback offers that online platforms with foreign investment were offering. "These clarifications will have a major impact on the major e-commerce players since a lot of them primarily source goods from sellers who are primarily relevant to such e-commerce players".

The new guidelines will also make it hard for players with FDI investments to offer discounts and cashbacks to online shoppers, a development that industry watchers say will affect business models of these companies.

It disallowed e-comm firms from entering into an agreement for an exclusive sale of products. Such services will include but not limited to fulfilment, logistics, warehousing, advertisement/ marketing, payments, financing etc. Cash back provided by group companies of marketplace entity to buyers shall be fair and non-discriminatory.

As per the current policy, 100 percent FDI is permitted in marketplace e-commerce activities. "If it's felt that there is, it will find its way to the e-commerce policy in a few weeks".

New Delhi, December 26 Plugging some of the loopholes in the Foreign Direct Investment (FDI) norms on e-commerce, the Centre has come up with a review policy explicitly stating who can sell on an e-commerce platform, and the distance that e-tailers have to maintain with their vendors.

"Marketplaces are meant for genuine, independent sellers, many of whom are MSMEs (micro, small and medium enterprises)", Snapdeal founder Kunal Bahl said on Twitter.

"For Amazon and Flipkart this policy change brings massive challenges".

The business of affiliate companies So the main crux of the Indian government's new policy is that "American companies are barred from selling products supplied by affiliate companies on their Indian shopping sites". Secondly, they will take a very aggressive stance on the advertising strategy. This basically means online will not be able to offer anything beyond convenience.

Still, the new policy is set to drive up costs for Amazon and Walmart in India and may affirm many investors' fears that Walmart's costly acquisition of Flipkart was misguided. "Nonetheless, these clarifications will definitely have major repercussions on the business model of such e-commerce players", Atul Pandey, partner at Khaitan & Co, said.

Ecommerce entity providing a marketplace will not exercise ownership or control over the inventory i.e. goods purported to be sold. The government has also declared its intention to impose tough new rules on the technology industry. The rules "will impact back-end related wholesale group entities and [marketplace entities would] need to remove them from the e-commerce value chain".

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