India’s New E-Commerce Guidelines

E-commerce is regulated in many countries. India, like other nations, also has a right to regulate the behaviour of businesses that operate on its soil. This is the reason why the Indian government had created specific regulations for the e-commerce industry.

However, the Indian e-commerce industry has become the playground of global giants. Companies like Wal-Mart and Amazon are now the biggest stakeholders in the Indian market. It was observed that many of these multinational companies have not been following the law of the land. Instead of following the rules mentioned in letter as well as in spirit, these multinationals have been trying to circumvent the regulations.

This is the reason why the Indian government was forced to come up with new notifications. These new notifications were not new rules per se. Instead, they were just meant to ensure that multinationals stop using legal loopholes.

Some of the main features of these new e-commerce guidelines have been listed below.

Camouflaged Lawbreakers

The Indian government has adopted the policy of phased opening up of its markets. This is the reason why it allows 100% foreign direct investment in some sectors of the economy while preventing this investment in others.

As far as multi-brand retail is concerned, the government prevents more than 49% control by foreign companies. E-commerce companies such as Flipkart and Amazon were using a complex web of entities in order to circumvent this rule. Hence, the reality is that e-commerce companies were really camouflaged entries of multi-brand retail into the Indian market.

No More Backdoor Operations

Companies like Flipkart and Amazon had spun off their inventory holding units as separate entities. Once again, e-commerce companies were found to be evading the law instead of following it. The old e-commerce regulation made it clear that marketplaces are only meant to be a place where buyers and sellers meet. Marketplaces were explicitly prohibited from holding inventory so that they are not able to influence the prices that also affect the smaller sellers in the market.

In reality, these marketplaces had created special purpose vehicles whose sole purpose was to directly buy from brands at a lower price. These SPV’s would then sell their stock to smaller retailers. The smaller retailers were also controlled by e-commerce websites themselves. This is the reason that these so-called smaller retailers got much more visibility than the regular smaller retailers. Hence, the reality was that these so-called independent retailers were only the inventory management units of these e-commerce companies. They were being falsely projected as independent companies in order to circumvent the law. Also, in many cases, a lot of these SPV’s were being used to create private labels and cordon off market share for the e-commerce brand.

Given the sinister nature of the operations being conducted by e-commerce companies, it is not surprising that the government has finally decided to put an end to it. As per new regulations, e-commerce companies cannot buy more than 25% of all the products being sold by a single seller.

Also, the Indian government has brought in a slew of regulations that make it impossible for e-commerce companies to give higher preference to certain sellers. The new laws make it clear that adopting any kind of discriminatory policy is illegal. The government wants to ensure that the millions of small traders that form the Indian retail market are also given a fair opportunity.

No More Exclusive Deals

The Indian government has also made it clear that it is now illegal to enter into exclusive deals with vendors. As per the Indian government’s opinion, such deals can be classified as unfair competition since they assist the attempts being made in order to corner the market.

Up until now, e-commerce companies have been using their money and marketing might to corner the sellers into providing them with exclusive deals. These deals have been at the heart of the unethical practice being followed by e-tailers in India. Now since the same product will be sold by multiple retailers, the competition will increase bringing down the prices for consumers.

By preventing exclusive deals, the Indian government is ensuring that e-tailing does not become a big player’s game. The millions of small retailers should also be given an opportunity to sell on these websites.

No More Deep Discounting

The present rules also prevent deep discounting by e-commerce companies. Deep discounting is basically a predatory pricing policy aimed at taking losses till the opposition runs out of money. Once again, there is absolutely no doubt that this policy is unethical and must be stopped at the earliest.

Is This Move Politically Motivated?

It would be incorrect to say that politics has nothing to do with this move. It is a known fact that middle-class traders form a huge vote bank which is obviously very important to any political party. These rules will definitely appease a big section of the vote bank and will help the present government gain some brownie points.

However, as mentioned above, no rules have been changed. The rules are just being implemented a bit more strictly. Hence, the intention behind this policy may not have been politically motivated, but the timing surely seems to be. The present government has overlooked these malpractices for two years and are now finally enforcing the rules at an opportune time.

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