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What are the possible benefits?
- Under the guidelines, the e-commerce players cannot directly or indirectly influence the price of goods and services.
- Also, e-commerce marketplace entity will not mandate any seller to sell any product exclusively on its platform only.
- Thus, consumers may no longer enjoy the deep discounts offered by retailers that have a close association with marketplace entities.
- However, the absence of large retailer’s monopoly will, however, bring relief to small retailers selling on these platforms.
- Traders running traditional brick-and-mortar stores, who now find it difficult to compete with the large e-commerce retailers with deep pockets, could also gain.
- These changes will enable a level playing field for all sellers, helping small retailers, including MSME, to leverage the reach of e-commerce.
What are the concerns?
- The guidelines say that e-commerce companies running marketplace platforms (Amazon and Flipkart) cannot sell products through companies in which they hold equity stake.
- Also, a vendor’s inventory will be deemed to be controlled by the e-commerce player if more than 25% of its purchases are from the e-commerce player or its related firms.
- Business model - The changes will have a significant impact on the business model of e-commerce majors, as most of them source goods from sellers who are related party entities.
- Going forward, the suppliers will not be permitted to sell their products on the platform run by such marketplace entity.
- This will impact backend operations, as Group entities would have to be removed from the e-commerce value chain.
- Separately, any specialised back-end support given by e-commerce players for some sellers must now be extended to all vendors.
- Equity restrictions - E-commerce players, who have their private labels on a product, will not be able to sell them on their platforms if they hold equity in the company manufacturing them.
- For example, Cloudtail India Pvt Ltd is the biggest retailer operating on Amazon, while WS Retail was the biggest seller on Flipkart.
- Cloudtail’s ownership shows a clear link with Amazon.
- Hence, under the new rules, Cloudtail, in which Amazon holds equity stake, may not be able to sell products on Amazon’s e-commerce platform.
- Voluntary sale - An e-commerce marketplace entity will not mandate any seller to offer a product exclusively on its platform under the new rules.
- However, there is no explanation on what to do when a seller voluntarily opts to sell exclusively on one e-commerce portal over another.
What should be done?
- The guidelines could reinforce investor complaints about India being unpredictable in terms of policies.
- Despite these concerns, the policy requires a major overhaul in the business model and shareholding structures of such players.
- The government, on its part, has to form a regulatory authority to check flouting of e-commerce rules under the new guidelines.
Source: The Indian Express, The Hindu
