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Govt toughens norms for e-commerce firms, bars exclusive deals

The revised 'policy on foreign direct investment in online retail' would be effective from February 2019.

Govt toughens norms for e-commerce firms, bars exclusive deals

NEW DELHI: Tightening norms for e-commerce firms having foreign direct investment, the government on Wednesday barred online marketplaces like Flipkart and Amazon from selling products of companies where they hold stakes.

Under the revised policy, the government also banned exclusive marketing arrangements that could influence product price.

The revised 'policy on foreign direct investment in online retail' would be effective from February 2019, a release from the Commerce and Industry Ministry said.

The revised norms, set by the Commerce and Industry Ministry, said these firms will have to offer equal services or facilities to all its vendors without discrimination.

The main objective of the revised norms and regulations is to safeguard the interest of domestic players, who have to face tough competition from e-retailers having deep pockets from foreign investors.

The new norms would also prevent the trend of influencing prices by e-commerce giants and ensure better enforcement of FDI guidelines in e-commerce firms.

Under the revised norms, a vendor will not be permitted to sell more than 25 percent 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 percent of purchases of such vendor are from the marketplace entity or its group companies," a press note from the Commerce and Industry Ministry 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," it said.

E-commerce marketplace entity "will not mandate" any seller to sell any good "exclusively" on its platform "only", the note fro the Ministry said.

The revised policy says 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 a 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.

Commenting on the government's revised norms, Kumar Rajagopalan, CEO, Retailers Association of India, said, ''The current clarification clearly bars the marketplace e-commerce entities from influencing price and creates a level playing field for sellers.''

Rakesh Biyani, Joint MD of Future Retail, said,  ''The government revised policy for e-commerce firms will end the disparity between offline and online platforms. However, the onus for effectively implementing the new policy would be equally on the government and the industry. The effective implementation of new rules is crucial for the welfare and good health of the entire sector.''

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".

On his turn, Amazon India spokesperson said, "We are evaluating the circular".

However, a senior e-commerce industry executive of another company warned that the move could adversely impact investments being made to bring new sellers on board. 

Meanwhile, the traders' body – CAIT - said that if the steps are implemented in proper spirit, malpractices and predatory pricing policy and deep discounting of e-commerce players will be a matter of past.

(With Additional Inputs From Agencies)