At a time when two major e-commerce companies, Flipkart and Amazon India, are on trial for anti-competitive practices in India, the ministry of consumer affairs has proposed changes in the e-commerce sector that prohibit e-tailers from hosting flash sales. The rules might also limit the growth of their private labels as the ministry has asked firms not to list related parties as sellers on their platforms.
If implemented, these two rules could limit the growth of Amazon and Walmart-owned Flipkart, which is looking to go public next year.
Similar to Black Friday in the US or Single’s Day (11.11) by Alibaba in China, Amazon and Flipkart host their flagship seasonal sales between September and October, a period when India sees a host of local festivals. However, if the recent rules become law, the e-commerce companies will have to cease their yearly sales. In 2019, before the pandemic, Flipkart and Amazon India collectively sold products worth USD 4.3 billion during their respective seasonal sales.
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In addition to this, the ministry has also asked all e-commerce companies to appoint a chief compliance officer, a nodal contact person for round-the-clock coordination with law enforcement agencies. The e-tailers will also be responsible if registered sellers fail to deliver goods ordered by consumers.
“A marketplace e-commerce entity shall be subject to a fall-back liability where a seller registered on its platform fails to deliver the goods or services ordered by a consumer due to negligent conduct, omission or commission of any act by such seller in fulfilling the duties and liabilities in the manner as prescribed by the marketplace e-commerce entity which causes loss to the consumer,” the ministry said.
The government is currently seeking suggestions and comments from the public and relevant stakeholders, including e-commerce companies and offline retailers, by July 6.
The new proposal comes two years after the government introduced changes to FDI rules for foreign-funded e-commerce companies in February 2019. Multiple Indian retailer association groups representing brick-and-mortar establishments had raised concerns against Flipkart and Amazon for anti-trade practices such as offering discounts and partnering with manufacturers for exclusive sales rights.
The new FDI rules prohibit e-commerce companies from offering steep discounts, forging exclusive partnerships with manufacturers, and holding inventory to directly sell to customers. It also barred e-tailers from selling products from vendors in which they have an equity interest or in which they have control over the inventory.
Flipkart and Amazon had to change their shareholding patterns in their subsidiaries that were sellers on their platforms and partner with a local conglomerate to comply with the changes. Amazon then delisted over 400,000 products from its platform to ensure it was in compliance with the law.