The Modi government will soon release the draft of its coveted e-commerce policy. As per a report by Moneycontrol, the notifications for the same will be released by the Ministry of Commerce by the 20th of August. The most important impact of the said policy will be that businesses like Amazon and Flipkart will be unable to offer huge discounts in flash sales as they have done for years.
The new rules have already rattled the industry lobby bodies like Internet and Mobile Association of India (IAMAI), which, in a submission to the Ministry of Commerce said that Draft e-commerce rules will lead to over regulations and impede the growth of the industry.
With the ban on “specific flash sales”, the government wants to protect retailers and small businesses. These retailers and small businesses were unable to compete with the ecommerce giants such as Flipkart and Amazon as they offered the same products with huge discounts.
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”.
During an investigation into Amazon India’s operations by Reuters, it got hold of internal mails which guided Amazon’s policy to dodge Indian laws meant to protect small retailers. As per the investigation, the internal documents revealed that Amazon India holds equity in companies listed on its website. Moreover, it provides these companies with favourable terms to sell products on its platform 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 investigation confirmed it.
“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 meant 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” and Amazon has direct or indirect interests in all these companies.
The draft rules for e-commerce companies, when enacted, would make life difficult for e-commerce companies that 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”.