India bans e-commerce companies from selling their own products

India will ban ecommerce companies such as Amazon and Walmart-owned Flipkart from selling products from companies in which they have an equity interest.

In a statement, the government also said that the companies will be prevented from entering into exclusive agreements with sellers. The new rules will be applicable from February 1.

“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,” the commerce ministry said in a statement.

The new guidelines for ecommerce companies that have received foreign investment will make it difficult for them to offer discounts and cashbacks to online shoppers, experts said, and will have ripple effects on their logistics and promotion services.

Companies have been able to offer discounted products because of the way their own entities and business-to-business arms have been structured.

The guidelines state that a vendor’s inventory will be considered to be controlled by an ecommerce marketplace if it makes more than 25% of its purchases from the marketplace entity or its group companies.

“The clarity on the 25% rule is to be noted since this can have an impact on the degree of discounts during large sales as well as on customer experience,” said Sreedhar Prasad, an ecommerce industry expert and partner at Kalaari Capital. The impact on discounting will come to the fore especially during sales on Flipkart and Amazon, experts said.

The All India Online Vendors Association (AIOVA) in October filed a petition with the anti-trust body Competition Commission of India (CCI) alleging that Amazon favors merchants that it partly owns, such as Cloudtail and Appario. The lobby group filed a similar petition against Flipkart in May, alleging violation of competition rules through preferential treatment for select sellers.

“The noise around this started to amplify post the Flipkart-Walmart deal. There was a feeling that small and medium-sized sellers and traders were hurt and were crowded out on the big ecommerce sites,” said an executive with an online retail company who did not want to be identified. Policy makers believe that despite drafting the regulations announced through Press Note 3, they were being circumvented.

The Confederation of All India Traders in a statement said that if the order is implemented in full then malpractices, predatory pricing policies and deep discounting by e-commerce players will no longer occur.

CAIT secretary general Praveen Khandelwal said the new rules will put an embargo on the tactics adopted by the global players to control and dominate retail trade in India through e-commerce.