The E-commerce Policy
The e-commerce policy was formulated in the year, and it primarily governs the foreign direct investments in the e-commerce sector in India. The government, on December 26th, 2018 made some alterations to the same, effective from 1st February 2019.
The old and the new
The old regulations stated that e-commerce companies cannot have ownership for the items they are selling. This led to e-commerce giants following a seller structure and having no control over their inventories. This allowed the companies like Amazon and Flipkart to offer enormous discounts. Under the new regulations, e-commerce giants will able to sell their private labels on their e-commerce websites as ban on private labels has been uplifted. Other regulations include restrictions on offering of discounts and on making deals for exclusive sale of merchants’ goods.
Newly imposed restrictions
The new policy states that an e-commerce business owning more than 25% of items it has listed, will be classified into the inventory based model. Such a business will not be eligible to receive direct foreign direct investments. The new rules do not permit companies to have any form of equity interest in the seller firms, in order to be classified as marketplace models. Apart from these, the e-commerce companies cannot urge sellers on exclusivity with respect to sale of their items. The new policy also states that any form of service offering ranging from discounts, cashback, terms of delivery, advertisements, payments, warehousing, should be applicable to all vendors in a just manner.
The changes set to be implemented, state that e-commerce companies can no longer influence pricing of items on their marketplaces. This will impact the popularity of online retail alternatives as discounts will be limited to the interest of the vendors than the marketplace owners. E-commerce majors buy items from wholesalers and sell them under their in-house brands. Such selling patterns will be curbed by the new policy. Cloudtail, the biggest operating retailer on Amazon, and WS retail, its Flipkart counterpart have ownership links to their parent e-commerce giants, Amazon and Flipkart respectively. Appario retail, in which Amazon has equity stake is another retailer which will face effects of the amendments in the e-commerce policy. While consumers will no longer be able to avail huge discounts, small retailers will benefit from these changes. Traditional brick-and-mortar traders will also gain from the new policy. Besides those mentioned, the government is likely to benefit from this policy as the smaller retailers constitute a large part of the ruling government’s vote bank.
We can point out that the new policy contributes nothing to making the online space more competitive. However, the local and small vendors stand to benefit from these policy changes. Also, with these regulations in place, the retail sector will become more organized. This will also bring a level playing field for other online retailers apart from the giants like Flipkart and Amazon.