To curb the unfair sales practices of the foreign e-commerce players like Amazon and Flipkart (owned by Walmart), the Consumer Affairs Ministry seeks to ban “specific flash sales” under the proposed changes in Consumer Protection Act.
Moreover, the Modi government is proposing many other changes for the e-commerce companies to ensure that they do not circumvent the Indian law and distort the market competition. As per the draft rules for e-commerce companies, which are based on IT intermediary rules, the e-commerce companies have to register with the Department of Promotion of Industry and Internal Trade (DPIIT). And they would also need to appoint a grievance officer, a chief compliance officer and a nodal contact person “for 24×7 coordination with law enforcement agencies”.
To ensure that e-commerce companies do not sell their own products on their website, the listing of products of “associated companies” would be completely banned. A company with 10 per cent of the above stake of an e-commerce entity would be considered an associated company. While as per the draft rules, conventional e-commerce flash sales are not banned, specific flash sales or back-to-back sales “which limit customer choice, increase prices and prevents a level playing field are not allowed”.
Previously, an investigation by Reuters on e-commerce giant Amazon had brought out the facts which were known for years from its own books. As per the investigation, the internal documents of Amazon India reveal that it helps the companies in which it owns the stocks to sell products in India – which is illegal. This was something that Union Minister of Commerce and Industry, Piyush Goyal had widely talked about last year, and the truth is finally out.
“Amazon favoured big sellers on its India platform – and used them to manoeuvre around rules meant to protect the country’s small retailers from getting crushed by e-commerce giants, internal documents show. As one presentation urged: Test the Boundaries of what is allowed by law,” reads the story by Reuters.
In March 2016, the Modi government allowed 100 per cent FDI in online stores that follow the marketplace model, which essentially means that no FDI is permitted in firms following the inventory model. The marketplace model means that an e-commerce entity on a digital and electronic network will need to bring in an information technology platform to act as a facilitator (for a fee) between the buyer and the seller, but unlike the companies that follow the inventory model, these companies cannot sell their own products.
However, Amazon created companies like Cloudtail to sell products at deep discounts. As of today, “some 33 Amazon sellers accounted for about a third of the value of all goods sold on the company’s website” because the company has some direct or indirect interest in these companies.
The draft rules for e-commerce companies, when enacted, would make life tough for e-commerce companies, which have abused the law of the land for the last few years.
The provisions of new draft rules also look to ask e-commerce companies to share information with a “government agency which is lawfully authorised for investigative or protective or cyber security activities, for the purposes of verification of identity, or for the prevention, detection, investigation, or prosecution, of offences under any law for the time being in force, or for cyber security incidents”.
The American “new economy” companies including internet and the e-commerce ones were enjoying a free ride in India and abused the law of the land to establish a monopoly in the country. Now the Modi government is teaching both social media and e-commerce companies a lesson.