“We will continue to see a convergence of the digital world and physical world. Those who conquer that trend would be market leaders.” – John Phillips, Pepsico Inc
In this episode of Startup Sunday, The Entrepreneurship Cell brings to you insights on the newly formed E-Commerce policy of India which came into force from February 2019.
How it started ?
Recently, The All India Online Vendors Association (AIOVA) in October filed a petition with the anti-trust body Competition Commission of India (CCI) alleging that Amazon favours merchants that it partly owns, such as Cloudtail and Appario. The lobby group filed a similar petition against Flipkart in May, alleging a violation of competition rules through preferential treatment for select sellers.
Following this, in late December 2018, the department of industrial policy and promotion (DIPP)—the nodal agency for formulating FDI policy— announced the new E-Commerce rules which came into force from February 1st 2019 that will impact all the E-Commerce companies in India, especially Amazon and Flipkart. The Modi government had allowed 100% FDI under the e-commerce marketplace model but prohibited FDI in inventory based e-commerce.
The highlights of the new rule:-
- E-commerce companies which are running marketplace platforms — like Amazon and Flipkart — cannot sell products through companies, and of companies, in which they hold an equity stake.
- E-Commerce companies cannot control the inventory of any seller.
- An e-commerce website can no more mandate any seller to sell any product exclusively on its platform only.
- A cap of 25% has been introduced on sales per vendor, i.e. marketplace entities cannot source more than 25% of its total sales from a single vendor, else it’d be deemed to have control over its inventory.
- The new rules make it clear that the cashbacks or discounts provided by group companies of an e-commerce website to buyers shall be fair and non-discriminatory.
- E-Commerce companies will have to submit a compliance report on the above guidelines to the Reserve Bank of India (RBI) by 30 September every year.
Impacts of the new rule :
- The US-India Strategic Partnership Forum (USISPF) stated that these new rules are regressive and that they could potentially harm consumers.
- Amazon India and Walmart owned Flipkart are hardest hit as they majorly depend upon their own sellers such as Cloudtail, Appario and WS Retail.
- As the rule came into force, Amazon was forced to remove thousands of items sold by its top vendors Appario and Cloudtail as it indirectly held 49 per cent equity stakes in both firms. However, Cloudtail returned with fresh listings after Amazon cut its indirect holding to 24 per cent.
- All the private label listings such as Amazon Basics, Echo Dot, Flipkart SmartBuy, Roadster Jeans etc of major e-commerce players got disrupted.
- The move to ban exclusive deals hurts the exclusive partnerships of e-commerce entities with top smartphone brands such as Xiaomi and Oppo.
- The government aims at maintaining a level playing field for all sellers and ensure that e-commerce companies do not directly or indirectly influence the sale price of goods and services.
So, is it the End of 70%-80% discounts for consumers?
The general feeling now is that these deep discounts are a thing of the past. But both Amazon & Flipkart are now actually setting up new sellers and they are having to go down the entire supply chain figuring out who their sellers can be within the 25% cap and it’s difficult to say that when everything will fall back into place. The absence of large retailers might bring some relief to small retailers selling on these platforms. Also, traders running traditional brick-and-mortar stores, who were finding it difficult to compete with the large e-commerce marketplaces with deep pockets, could gain from the introduction of these rules. However, the overall reaction of consumers based on a recent survey conducted on a social media platform wanted the government to desist from curbing discounts and cashbacks by e-commerce companies.