Centre tightens rules for e-commerce firms: What lies ahead for Amazon, Flipkart?

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In a setback for e-commerce firms having foreign investment, the government on Wednesday barred online marketplaces such as Flipkart and Amazon from selling products of the companies in which they have a stake. The commerce and industry ministry also forbidden e-commerce firms from entering into an agreement for the exclusive sale of products.

The revised policy on foreign direct investment in online retail also said that these firms have to offer equal services or facilities to all its vendors without discrimination.

The policy would be effective from February 2019.

The revised norms are aimed at protecting the interest of domestic players, who have to face tough competition from e-retailers having deep pockets from foreign investors, the ministry said.

“The move would completely prevent influencing prices by e-commerce players. This will also ensure better enforcement of FDI guidelines in e-commerce companies,” a senior official said.

The policy says a vendor will not be permitted to sell more than 25 per cent of its products on an online platform of a single e-marketplace firm.

“Inventory of a vendor will be deemed to be controlled by e-commerce marketplace entity if more than 25 per cent of purchases of such vendor is from the marketplace entity or its group companies,” the commerce and industry ministry’s press note said.

“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, will not be permitted to sell its products on the platform run by such marketplace entity”.

E-commerce marketplace entity “will not mandate” any seller to sell any good “exclusively” on its platform “only”, the note said.

Any service like logistics provided by e-commerce companies to vendors in which they have direct or indirect equity participation or common control stake should be fair and non-discriminatory.

These services include logistics, warehousing, advertisement, marketing, payments, financing etc.

It said that cash back provided by group companies of marketplace entity to buyers should be fair and non-discriminatory.

“For the purposes of this clause, provision of services to any vendor on such terms which are not made available to other vendors in similar circumstances will be deemed unfair and discriminatory,” the note added.

It further said that these companies will have to file a certificate along with a report of the statutory auditor to the RBI, confirming compliance of guidelines by September 30th of every year for the preceding fiscal.

Welcoming the move, Snapdeal CEO Kunal Bahl tweeted that “Marketplaces are meant for genuine, independent sellers, many of whom are MSMEs. These changes will enable a level playing field for all sellers, helping them leverage the reach of e-commerce”.

According to the current policy, 100 per cent FDI is permitted in marketplace e-commerce activities. It is prohibited in inventory-based activities.

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