In the midst of an antitrust probe, e-commerce powerhouses Amazon and Walmart’s Flipkart are in for a tough time in the world’s second largest market. Their sales are likely to be hit hard if the changes proposed by the Ministry of Consumer Affairs are given the green light, including a ban on flash sales and prohibiting their affiliate entities from being listed as sellers on their platforms.
This comes after brick-and-mortar retailers in the country have alleged that the US-based e-commerce platforms indulge in unfair practices as they scale up their operations in the country and bypass Indian laws by using complex business structures. The new rules, including the appointment of a chief compliance officer, giving preference to the sale of locally produced goods, and mandatory registration of e-tailers with Department for Promotion of Industry and Internal Trade (DPIIT), can hurt their prospects in the world’s second largest internet market.
For now, Amazon and Flipkart have maintained that they are willing to comply with all Indian laws. Amazon said on Monday it was reviewing the draft rules and had no immediate comment, while Walmart’s Flipkart did not comment.
According to the proposal, e-commerce firms should not be allowed to hold flash sales in India. Flash sales ramp up the sales for some particular segment, usually smartphones, by giving heavy discounts, and are very popular during the festive season in the US. However, offline sellers have been unhappy with such flash sales, since it hurts their businesses as they are unable to compete with the heavy discounts online.
The Ministry has sought feedback from all stakeholders, including e-commerce firms, on the changes by July 6. The new rules are set to ensure free and fair competition in the market and to protect the interests of consumers.
“Certain e-commerce entities are engaging in limiting consumer choice by indulging in ‘back to back’ or ‘flash’ sales wherein one seller selling on platform does not carry any inventory or order fulfilment capability but merely places a ‘flash or back to back’ order with another seller controlled by platform. This prevents a level playing field and ultimately limits customer choice and increases prices,” the Ministry said in a statement.
Additionally, the e-commerce platforms in the country must ensure that none of their “related parties and associated enterprises” are listed as sellers on their shopping websites, and no related entity should sell goods to an online seller operating on the same platform.
If that is not all, the Ministry has proposed that e-commerce firms appoint a chief compliance officer, a nodal contact person for 24×7 coordination with law enforcement agencies, and officers to ensure compliance to their orders as well as a resident grievance officer for redressing of the grievances of the consumers on the e-commerce platform. This is similar to the Centre’s new IT rules, which asked popular social media companies in the country to make the necessary appointments if they wanted to remain operational in India. As you may remember, these IT rules had already caused a furore between the government and social media companies, especially Twitter.
The Ministry said that this would ensure effective compliance with the provisions of the Act and Rules and also strengthen the grievance redressal mechanism on e-commerce entities, adding that e-commerce platforms were also asked to provide government agencies with information within 72 hours “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.”
“By requiring e-commerce entities to register with the DPIIT and appoint a chief compliance officer, nodal officer and grievance officer who are citizens of (and resident in) India, the proposed rules seek to hold e-commerce entities in the country accountable. At first glance, it will be interesting to see how practically these changes are implemented,” Archana Tewary, partner, J Sagar Associates, said.
The proposal also asks e-commerce firms to identify goods on their platforms based on their country of origin.
Companies are also asked to give suggestions of alternative products before customers make purchases “to ensure a fair opportunity for domestic goods,” thereby changing the e-commerce industry in India. According to an e-commerce executive, this went beyond consumer rules and was basically an e-commerce industry policy. They added that it would be extremely disruptive.