India tightens regulation of e-commerce firms in bid to check predatory pricing

India is to tighten rules for foreign investment in e-commerce companies to check predatory pricing and deep discounts that have threatened the domestic retail industry.

E-commerce companies like Amazon.com Inc and Walmart Inc’s Flipkart, which act as a facilitator between the buyer and seller by providing an online market place, must treat all vendors equally by providing the same terms, the Indian Directorate-General of Foreign Trade said in a circular on Wednesday.

Cashback provided to buyers shall be fair and companies must not influence the price of goods or services. The new rules are to take effect on Feb. 1.

The move against online retail could help Indian Prime Minister Narendra Modi’s Bharatiya Janata Party win support from local traders — a key voting bloc for the party, which suffered defeats in provincial elections this month.

The south Asian nation is key to global retailers, as it has a population of more than 1 billion, but only a few million own smartphones, offering the opportunity of exponential growth in online consumption.

The government barred e-commerce companies from forcing a seller to feature products exclusively on their platforms.

A certificate confirming the compliance of all rules and an auditor’s note would have to be submitted to the Reserve Bank of India by Sept. 30 every year for the preceding financial year.

“It’s a big achievement after a long struggle,” Confederation of All India Traders secretary-general Praveen Khandelwal said in a statement. “If it is implemented in proper spirit, malpractices and predatory pricing policy, and deep discounting of e-commerce players will be a matter of past.”

Amazon and Flipkart are to make presentations before India’s Ministry of Finance and Ministry of Commerce and Industry to contest the new rules, local news channel BTVI said in a Twitter post, citing unidentified people.

Amazon is evaluating the rules, a spokesperson for Amazon India said in an e-mail.

Flipkart did not immediately respond to a message seeking comments.

E-commerce entities providing a marketplace would not be allowed to exercise ownership or control over the inventory, and inventory of a vendor is to be deemed to be controlled by a marketplace entity if more than 25 percent of purchases of such a vendor are from the entity, according to the rules.

Entities having equity participation by an e-commerce marketplace or its group companies are to be barred from selling their products on the platform run by that marketplace entity, the rules say.

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