India tightens e-commerce rules; Amazon, Flipkart seen affected

Indian authorities announced new rules that ban e-commerce companies such as Amazon and Flipkart from selling products from firms in which they have an equity interest, Reuters reports.

In a statement, the government also said that the companies will be prevented from entering into exclusive agreements with sellers, the report said.

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,” India’s commerce ministry was quoted as saying in a statement on Wednesday.

The new regulations follow complaints from Indian retailers and traders, who say giant e-commerce companies are using their control over inventory from their affiliates, and through exclusive sales agreements, to create an unfair marketplace that allows them to sell some products at very low prices.

The All India Online Vendors Association in October filed a petition with the anti-trust body Competition Commission of India alleging that Amazon favors merchants that it partly owns, such as Cloudtail and Appario.

The lobby group filed a similar petition against Walmart-owned Flipkart in May, alleging violation of competition rules through preferential treatment for select sellers. 

Wednesday’s government notification also decreed that the cash back that customers get as an incentive while online shopping should not be based on whether the product was purchased from an affiliate of the platform or not.

The new rules said that services provided to vendors on an e-commerce platform and by that entity’s affiliates should be done so at arm’s length and in a fair and non-discriminatory manner.

The New rules will appease small traders and farmers who fear that US companies are making a back door entry into India’s retail market and could squeeze out small corner shops that dominate Indian retailing, Reuters noted.

The Confederation of All India Traders in a statement said that if the order is implemented in full, malpractices, predatory pricing policies and deep discounting by e-commerce firms could end.

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