Mega online sales to take hit as govt tightens norms

​New Delhi: Tightening norms for e-commerce firms having foreign investment, the government Wednesday barred online marketplaces like Flipkart and Amazon from selling products of companies where they hold stakes and banned exclusive marketing arrangements that could influence product price.

The revised policy on foreign direct investment in online retail, issued by the commerce and industry ministry, also said that these firms have to offer equal services or facilities to all its vendors without discrimination. The revised norms are aimed at protecting the interest of domestic players, who have to face tough competition from e-retailers having deep pockets from foreign investors, the ministry said. The policy would be effective from February 2019.

"The move would completely prevent influencing prices by e-commerce players. This will also ensure better enforcement of FDI guidelines in e-commerce companies," a senior official said. The policy says a vendor will not be permitted to sell more than 25 per cent of its products on an online platform of a single e-marketplace firm.

"Inventory of a vendor will be deemed to be controlled by e-commerce marketplace entity if more than 25 per cent of purchases of such vendor are from the marketplace entity or its group companies," the commerce and industry ministry's press note said.

"An entity having equity participation by e-commerce marketplace entity or its group companies or having control on its inventory by e-commerce marketplace entity or its group companies, will not be permitted to sell its products on the platform run by such marketplace entity".

E-commerce marketplace entity "will not mandate" any seller to sell any good "exclusively" on its platform "only", the note said. Any service like logistics provided by e-commerce companies to vendors in which they have direct or indirect equity participation or common control stake, should be fair and non-discriminatory. These services include logistics, warehousing, advertisement, marketing, payments, financing etc. It said that cash back provided by group companies of marketplace entity to buyers should be fair and non-discriminatory.

"For the purposes of this clause, provision of services to any vendor on such terms which are not made available to other vendors in similar circumstances will be deemed unfair and discriminatory," it added. It further said that these companies will have to file a certificate along with a report of statutory auditor to the RBI, confirming compliance of guidelines by September 30th of every year for the preceding fiscal.

The decision comes against the backdrop of several complaints being flagged by domestic traders on heavy discounts being given by e-commerce players to consumers. According to the current policy, 100 per cent FDI is permitted in marketplace e-commerce activities. It is prohibited in inventory-based activities.

Welcoming the move, Snapdeal CEO Kunal Bahl tweeted that "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". Amazon India spokesperson said: "We are evaluating the circular". A senior e-commerce industry executive of another company said that the move could adversely impact investments being made to bring new sellers on board.