India’s planned e-commerce rules will disrupt online firms

Mumbai — India’s proposed changes to consumer rules for the e-commerce sector could be hugely disruptive for some of the country’s biggest online shopping websites, including US-based Amazon and Walmart’s Flipkart.

The rules come as US firms battle allegations from traders for working around foreign investment regulations for the sector, and could further complicate the operating environment for Amazon and Flipkart even as the companies fight antitrust allegations in courts. The companies deny any wrongdoing.

India’s e-commerce market is projected to grow 30% annually to $200bn by 2026. It also counts Reliance Industries’s JioMart, Tata’s BigBasket, Softbank-backed Snapdeal and Future Retail among major players.

Here are some of the new proposals, which are open for public consultation until July 6:

Affiliates as sellers 

E-commerce companies must ensure 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.

The changes could affect business structures used by Flipkart and Amazon, sources and lawyers said. Amazon specifically holds indirect stakes in two of the top sellers on its website. A Reuters investigation in February showed Amazon helped a small number of sellers prosper online, giving them discounted fees and classifying some as “special merchants”.

Some of Amazon’s top sellers also used to buy goods through Amazon’s wholesale unit in India before reselling them on the site, Reuters reported, a practice that may be affected.

Flash sales ban

E-commerce companies should not hold flash sales — which see deep discounts on offer — if these are organised “fraudulently” using “technological means” with an intent to benefit select sellers, the rules say.

Indian traders say the US firms work with select sellers to offer certain models of smartphones and other products during these promotions, an allegation the companies deny.

Online sales are immensely popular on all websites, including Amazon, Flipkart and Reliance's JioMart.

Private labels

Brands associated with the e-commerce entity will be barred from promotion or sale on its platform, the rules say.

This is seen as hurting private labels, which are brands owned or licensed by companies such as Amazon to certain sellers, which then market them on their online platforms.

Both Indian and foreign players have developed extensive private-label offerings in recent years that help them boost their overall profitability.

Imported products 

Websites selling imported products should identify them on the basis of their so-called “country of origin”. Further, they should add a filter mechanism and display notification to suggest “alternatives to ensure a fair opportunity for domestic goods”.

Misleading adverts 

No e-commerce entity shall allow any display or promotion of “misleading advertisement” on its platform. They also must within 72 hours of receiving an order assist government agencies for investigative or cybersecurity-related activities.

The new rules also propose to increase liability of e-commerce firms, which could be held liable if a consumer suffers due to a seller’s negligent conduct or failure to deliver goods.

Search results

Online websites should not mislead users by manipulating search results and provide ranking for goods while ensuring its parameters do not discriminate against domestic goods and sellers.

Compliance needs

E-commerce companies will put in place a grievance redressal mechanism, including appointing a chief compliance officer. The government’s mandate for such appointments, already in place for social media companies, is seen as raising compliance requirements of e-commerce firms.

Reuters