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The Indian Government has issued a set of guidelines that could have widespread ramifications for the country’s e-commerce industry, as many existing practices may have to be changed.
Under new guidelines issued by Department of Industrial Policy and Promotion (DIPP), which is part of the Ministry of Commerce and Industry, flash sales – or exclusive sale of a product – on Flipkart or Amazon might soon be a thing of the past.
The DIPP has made it clear that no e-commerce marketing platform can force a seller to sell exclusively on their platform. However, sellers are free to opt for just one platform to sell their products.
It has also clamped down on big discounts offered by many e-commerce platforms. This is to curb the practice of predatory pricing, which has reportedly hit the brick-and-mortar shops very hard.
Another far-reaching decision is the regulation banning e-commerce vendors from selling products from companies in which they have a stake. This rule is expected to affect Amazon and Flipkart.
Amazon has a stake in Cloudtail India, which is one of the largest sellers on its platform, as well as Appario Retail. Flipkart also owns a stake in vendors such as RetailNet and Omnitech Retail.
In regard to foreign direct investment in the e-commerce sector, 100% FDI is permitted in the marketplace model of e-commerce, but it is not permitted in inventory-based models of e-commerce. This may now prevent companies like Flipkart from raising foreign investment in the future.
The DIPP has also made it clear that e-commerce marketplaces will have to furnish a certificate plus a report from their statutory auditor to the Reserve Bank of India, confirming that they complied with all guidelines by September 30 every year for the preceding financial year.
E-commerce firm Snapdeal, which recently suffered a severe loss of market share, welcomed the new guidelines. Snapdeal founder Kunal Bahl tweeted: “@Snapdeal welcomes updates to FDI policy on e-commerce. Marketplaces are meant for genuine, independent sellers, many of whom are MSMEs. These changes will enable a level playing field for all sellers, helping them leverage the reach of e-commerce.”
An offline traders’ body, the Confederation of All India Traders. also welcomed the move and called for the government to strictly implement the new rules to prevent predatory pricing by e-commerce players.