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.
