On the 1st of February, the Government of India modified the policy of Foreign Direct Investment (FDI). The rules mandate that foreign investors cannot use their own e-commerce platforms to control and market their own inventory. Their marketplace can only be used by others to sell goods to retail consumers. E-commerce entities will have to “maintain a level playing field” and refrain from directly/indirectly influencing the sale price of goods and services.
[box type=”shadow” align=”” class=”” width=””]Also Read: Last year, the EU opened an investigation against Amazon, to understand how the company uses the data it gathers through transactions. The purpose of the probe was to check whether the data collected legitimately, is also used to give Amazon a competitive advantage over the smaller merchants by allowing it to understand the kinds of things people want to buy.[/box]
The new amendments to the policy set the following ground rules for online marketplace owners:
- Prohibit marketplace “owners” from selling products on their own marketplace through vendors in which they hold an equity interest.
- Prohibits marketplace owners from making deals to sell products exclusively on their platforms.
- All vendors on the e-commerce platform should be provided services in a “fair and non-discriminatory manner”, including fulfillment, logistics, warehousing, advertisement, and other services.
This has sent two of India’s largest online retailers- Amazon.in and Walmart owned Flipkart.com into a frenzy, scrambling to adjust their e-commerce model to accommodate Indian rules. Amazon and Flipkart, both rely on foreign investment to operate in India. With the new rules in place, products have started to be pulled down from Amazon. Smartphones that were launched as “exclusive deals”, Amazon’s range of Echo speakers and other Amazon exclusive goods have disappeared from the site. According to BBC, Clothing from an Indian department store chain -Shopper’s Stop- is also unavailable now. This because Amazon owns 5% of the company. Users will now have to rely on resellers or offline stores for these products, which may have a far-reaching impact on India’s e-commerce sector in the long run.
Flipkart’s chief of corporate affairs Rajneesh Kumar said in a statement: “We believe that policy should be created in a consultative, market-driven manner and we will continue to work with the government to promote fair, pro-growth policies,”
What does this mean for small retailers, consumers?
Small traders have been alleging that e-commerce giants create an unfair marketplace for them to work in.
The rule responds to a problem that merchants selling on Amazon routinely face: Amazon will spot their best-selling products and then produce an Amazon-branded version, demoting them in search listings and eating their sales https://t.co/uL6bXSBPoS
— Lina Khan (@linamkhan) February 1, 2019
The Confederation of All India Traders has advised the government to go further by forming a new regulatory authority and a “special investigation team” that looks into the business models of major e-commerce players.
Thx @sureshpprabhu @rabhishek1982 @amitabhk87 for remaining firm on e commerce issue. Now let the policy be implemented strictly and violations be dealt with seriously. Regulatory Authority is need of the hour @CimGOI @DIPPGOI
— Praveen Khandelwal (@praveendel) January 31, 2019
While traders may be completely in favor of these new rules, the public is abuzz with mixed sentiments. Some citizens have expressed their views on why the rule doesn’t make sense
Sorry man. It's a ridiculously stupid rule. Like I said on FB. Telling a company to pull their own products from their own site is utterly moronic. I've read this and I'll still stick with the same opinion I had earlier
— Ashwin Mushran (@ashwinmushran) February 3, 2019
Many citizens have accused Amazon of not being fair with their pricing structure and product listing policies. This particular user started an interesting thread, sharing his views on how Amazon could in fact help smaller retailers grow.
Amazon claims to be a marketplace & it should be fair to all sellers. Discriminating in listing & underpricing are not fair policies!
— Aakash Gupta (@AKG1593) February 3, 2019
Cloudtail India Pvt Ltd and WS Retail will be amongst the many suffering a huge setback because of this law. Small retailers can now breathe a sigh of relief as the big guns step out of the picture.
The US-India Strategic Partnership Forum (USISPF) President and Chief Executive Officer (FPO) Mukesh Aghi stated that “it is not the government’s business to micromanage businesses” and the rules are “regressive” that would harm consumers, create unpredictability and have a negative impact on the growth of online retail in India.
It will be interesting to see how India’s e-commerce marketplace and its consumers cope up with the repercussions of this law.
You can head over to BBC for more insights on this news.
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