An End of the Era of Online Big Festive Sales???

E-commerce giants have captured the Indian retail market with their impressive discount, variety of brands, much more options for buyers, home delivery facility and big festive sales. India has the fastest growing online retail market among top global economies.

Electronic commerce operates in four of the major market segments: business to business, business to consumer, consumer to consumer and consumer to business. In India, there are three type of e-commerce business model,
(i) Inventory base model of e-commerce
(ii) Marketplace base model of e-commerce
(iii) Hybrid model of inventory based and market place model.

The E-commerce policy in India declared by the DIPP (Department of Industrial Policy and Promotion), under the Ministry of Commerce & Industries allows 100% FDI (Foreign Direct Investment) in Business to Business (B2B) firm under the automated route but FDI for Business to Consumer (B2C) E-Commerce firms is permitted under specific circumstances. As per the guidelines on FDI in e-commerce, 100% FDI under automatic route is permitted in marketplace model of e-commerce, while FDI is not permitted in inventory based model of e-commerce. Only in the retailing of food items produced in India is FDI allowed up to 100% through government approval. So the E-commerce companies can’t hold inventory for goods except for food retailing but for that too they need to keep their food retailing separate from other ventures.

However the E-commerce giants have many times been accused by bodies representing brick-and-mortar stores, retailers, traders for violating these FDI guidelines. In past many time traders' bodies had urged Government to take action against E-commerce giants for undertaking retail trading activities and giving deep discounts on their digital platforms. These companies have been accused of using their control over inventory from their affiliate and through exclusive sales agreement to create unfair market place that allow them to sell certain products with huge discount.

In order to fix loop holes in FDI norms on E-commerce the center has come up with new draft of E-commerce review policy. The tightening norms are expected to create level playing field for small and medium retailers and also help traders and kirana stores to stay relevant in competition.

The policy prohibits E-commerce platforms from giving any preferential treatment to any supplier. The new rules mandate that the services provided to a vendor on E-commerce platform should be done on fair and non discriminatory manner.
The policy do not allow e-commerce companies to sell their own products on the marketplace. The policy says that 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 curb massive discounts and cashbacks.
E-commerce companies are banned from exclusive marketing arrangement that could influence produce price. This will prevent any brand/supplier aligning exclusively with one marketplace. As it is the usual case with electronic items like mobiles.
A vendor will not be permitted to sell more than 25% of products on an online platform of a single e-marketplace firm. Inventory of a vendor will be deemed to be controlled by E-commerce marketplace entity if more than 25% of purchases of such vendor are from the marketplace entity or its group companies.
The new draft has proposed a sunset clause for predatory pricing policies that include zero payment offers, flash sales and unlimited offers. As per the new rules selective promotional schemes like cashback, faster delivery are unfair and discriminatory.
Any service like logistic, warehousing, marketing, payment, advertisement provided by E-commerce companies to vendors in which they have direct or indirect equity participation or common control stack should be fair and non discriminatory.
As per the new rules these companies need to file certificate, report of statutory auditor to RBI by September 30 every year for the preceding fiscal.