New laws for E-commerce Businesses in India 2020

New laws for E-commerce in India

The government recently announced new e-commerce rules restricting players from selling the products of companies in which they have a stake.
The rules also cap the percentage of inventory that a vendor can sell through a marketplace entity (IT platform of an e-commerce entity) or its group companies.

Background

Indian retailers and traders complained that the giant e-commerce companies are using their control over inventory from their affiliates, and through exclusive sales agreements.
It is creating an unfair marketplace that allows them to sell some products at very low prices.
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 violation of competition rules through preferential treatment for select sellers.
The new regulations come in the backdrop of such complaints for unfair trade practices.

Inventory and Marketplace models of e-commerce

The inventory-based model of e-commerce: It is when the inventory of goods and services is owned by the e-3 entity and sold to consumers directly. FDI is not permitted in the inventory-based model of e-commerce.
The marketplace model: It is when an e-commerce company simply provides an information technology platform in order to act as a facilitator between the buyer and the seller. Amazon and Flipkart are players in this segment (but have been alleged to be breaching into the inventory model).

New laws for e-commerse in India :

The government recently announced new e-commerce rules. The Ministry of Commerce issued a clarification regarding the Consolidated FDI Policy Circular 2017.
On sales:
- E-commerce firms cannot hold a stake in, or control vendor selling through its platform. Such an ownership or control over the inventory will render the business into an inventory-based model (and comes with restrictions).
- Inventory of a vendor will be deemed to be controlled by an e-commerce marketplace entity if more than 25% of purchases of such vendors are from the marketplace entity or its group companies.
On discounts:
- To curb the practice of deep discounts, the government said e-commerce players cannot directly or indirectly influence the price of goods and services.
- The cashback that customers get as an incentive while online shopping should not be based on whether the product was purchased from an affiliate of the platform or not.
On Exclusivity:

How are various stakeholders likely to be impacted?

Impact on big marketplace retailers:

Cloudtail India Pvt Ltd is the biggest retailer operating on Amazon (Appario Retail is another big player), while WS Retail was the biggest seller on Flipkart.
Cloudtail’s and Appirio's ownership shows a clear link with Amazon.
Under the new rules, Cloudtail and Appario, in which Amazon holds equity stake, may not be able to sell products on Amazon’s e-commerce platform (or Amazon will have to dilute its stake in these sellers).
Similar will be the case for WS Retail on Flipkart.
Thus, the changes will have a significant impact on the business model of e-commerce majors, as most of them source goods from sellers who are related party entities.
e-commerce players like Amazon and Flipkart, who have their private labels, will also not be able to sell them on their platforms if they hold equity in the company manufacturing them.

Impact on independent sellers on e-commerce sites:

Marketplaces are meant for genuine, independent sellers, many of whom are MSMEs (Micro, Small & Medium Enterprises).
These changes will enable a level playing field for all sellers, helping them leverage the reach of e-commerce.
Fair marketplace to sellers: The government has said that e-commerce entities will have to maintain a level playing field, and ensure that they do not directly or indirectly influence the sale price of goods and services.
The policy mandates that no seller can sell its products exclusively on any marketplace platform and that all vendors on the e-commerce platform should be provided services in a “fair and non-discriminatory manner”.
Services include fulfillment, logistics, warehousing, advertisement, payments, and financing among others.

Impact on consumers:

Consumers may no longer enjoy the deep discounts offered by retailers that have a close association with marketplace entities.

Impact on retailers:

The absence of large retailers will, however, bring relief to small retailers selling on these platforms.
Traders running traditional brick-and-mortar stores, who now find it difficult to compete with the large e-commerce retailers with deep pockets, could gain