The Department of Industrial Policy & Promotion has made policy changes that tip the balance in favour of brick-and-mortar retailers at the expense of e-commerce firms
Brick-and mortar retailers who have been protesting against ‘unfair practices’ like deep discounting by e-commerce firms have been given a reprieve by the government. The Department of Industrial Policy and Promotion has instituted changes in the policy that will impact how the likes of Flipkart and Amazon do business in India. The norms will be in place by February 1, 2019.
Among the changes introduced, e-commerce firms have been barred from selling ‘exclusive only’ products on their platforms as this is deemed to influence prices. In particular, exclusive deals like those by Flipkart with smartphone brands like Xiaomi and Oppo will be impacted by the decision.
Another major change pertains to the sale of products by related entities on the e-commerce company’s platform. In this regard, the policy states, “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.”
This will hurt e-commerce companies like Amazon, which has tie ups with firms like Cloudtail, Appario and more. The norms are aimed at preventing misuse of loopholes in FDI policy by foreign e-commerce firms and differential treatment being given to vendors. While 100% FDI is permitted in market-place e-commerce, it is not allowed in inventory-based e-commerce.
The policy also states that any vendor will only be allowed to sell upto 25% of its products on a particular e-commerce platform. If that is still done, the vendor’s inventory will be deemed to be controlled by the marketplace entity. Also, cashbacks by group companies of a marketplace entity will have to be ‘fair and non-discriminatory’.
Executives from e-commerce firms have predictably called the changes discriminatory. A leading executive from the industry spoke on condition of anonymity to Mint:
“This policy makes no sense and is utterly ridiculous. The way this new policy has been crafted shows a complete lack of understanding of the retail landscape in India and how it functions. We were not even consulted before this was issued.”
However, not all e-commerce players are against the changes. Kunal Bahl, Co-founder, Snapdeal, said on Twitter, “Snapdeal welcomes updates to FDI policy on e-commerce. 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.”
Future Group founder Kishore Biyani has further supported the policy whole-heartedly, calling it the perfect opportunity to build an Indian Amazon or Alibaba. He states,
“It’s a game-changer for us. There was no chance we could have discounted the products like online companies in a profitable manner. It was all driven by capital and balance sheet and not really by skills or business acumen. This will all stop now and many companies, including a lot of online groceries, will have to shut shop.”
The immediate recourse, as confirmed unofficially by employees working for e-commerce players will be heavy lobbying against the new rules. But given the general policy direction, players like Amazon and Flipkart will have to re-evaluate their growth strategies and holding patterns in the meantime for the Indian market.