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E-commerce Norms Have Been Tightened in India

Operators of e-commerce marketplaces can no longer be involved with sellers directly or indirectly, and cannot influence prices or offer their services discriminatingly

The government has tightened the norms for conducting e-commerce business in India, and the ‘clarified’ policy will come into effect from 1 February 2019. According to the policy (Press Note  No. 2 – 2018 Series) entities related to e-commerce platforms are barred from selling on that site, and there’s a limit on how much one vendor can sell on a particular portal. The policy also prohibits e-commerce platforms from giving any preferential treatment to any supplier. What this effectively means is that online retailers such as Flipkart and Amazon cannot sell products of companies in which they own stakes, and also cannot enter into exclusive deals for merchandise. It is being said that the new norms have been introduced following complaints by small traders, who contended that deep discounts offered by the likes of Amazon and Flipkart were driving them out of business.

Technically speaking, the Press Note 3 (PN 3) of 2016 had made it clear that e-commerce platforms could not directly or indirectly influence prices. However, there had been multiple complaints about these platforms violating norms to offer discounts through their group entities engaged in logistics and wholesale. This led the government to come up with greater clarity in terms of ‘tightening’ of the policy norms. The e-commerce companies will now have to go back to the drawing board and see if their business models comply with the new requirements.

While the big marketplace operators are maintaining a studied silence, a few have welcomed the government’s move stating that it will ensure balanced growth of India’s e-commerce industry, creating lasting gains for both sellers and buyers. They further point out that these changes will help create a level playing field for all sellers. CAIT, which had been spearheading the campaign against big marketplaces, has welcomed the move. CAIT’s secretary general, Praveen Khandelwal, in interaction with CNBC, said, “If it is implemented in the proper spirit, malpractices and predatory pricing policy and deep discounting of e-commerce players will be a thing of the past.” He added that the policy should be implemented with retrospective effect, from 1 April 2018.

Points to Ponder
What the DIPP Has Clarified

  • E-commerce entity providing a marketplace will not exercise ownership or control over the inventory, i.e. goods purported to be sold. Such ownership or control over the inventory will render the business into an inventory-based model. 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.
  • 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, (the affiliate of the entity) will not be permitted to sell its products on the platform run by such marketplace entity.
  • E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain a level playing field. Services should be provided by e-commerce marketplace entity or other entities in which e-commerce marketplace entity 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.
  • Fair and non-discriminatory cash-back will be provided by group companies of marketplace entity to buyers.
  • E-commerce marketplace entity will not mandate any seller to sell any product exclusively on its platform only.
  • E-commerce marketplace entity will be required to furnish a certificate along with a report of a statutory auditor to the Reserve Bank of India, confirming compliance of the guidelines, by 30th of September every year for the preceding financial year.
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