This article is written by Uzair Ahmad Khan, pursuing a Diploma in Entrepreneurship, Administration and Business Laws from LawSikho, a student of Teerthanker Mahaveer University, Moradabad. Here he discusses how Amazon and Flipkart are dealing with new e-commerce regulations.

Introduction

India’s e-commerce sector is currently estimated to be worth around $25 billion. It is expected to grow $200 billion over the next 10 years.

E-commerce websites like Flipkart and Amazon have made life so easy for the consumers, as with the help of one click a person can purchase whatever he wants to buy on discount from home, office or anywhere you just name it without even going to the actual store and get the product delivered at his/her doorstep.

However, these giant companies have created a problem for the domestic sellers who are dominated by these giants because of the enormous discounts offered by these websites and is destroying their business.

What are the different models of e-commerce?

There are mainly two different models of e-commerce and they are followed as-

Marketplace Model

Marketplace model of e-commerce means providing an information technology platform by an e-commerce entity on a digital and electronic network to act as a mediator between buyer and seller. In simple terms, it means it is a platform which works as a mediator between the buyer and the seller.

Inventory Model

Inventory model of e-commerce means an e-commerce entity where the inventory of goods and services is owned by e-commerce entity itself and directly sell its product to the consumers. For example, Amazon acquired Cloudtail and sell its product directly on its website.

The government allows 100% FDI in the marketplace model but it does not allow FDI in e-commerce companies that hold their own inventories.

What are the old E-Commerce regulations?

The old e-commerce regulations are followed as-

• E-commerce companies running marketplace platforms used to sell products through companies, and of companies, in which they hold an equity stake before 1 February 2019.
• Earlier there was no cap on the inventory that a market place entity or group companies can buy from a vendor.
• There was no restriction on the seller to sell any product exclusively on its platform.
• Earlier marketplaces used to offer deep discounts through their in house companies.
• There was no establishment of central consumer protection authority to readdress consumer grievance.
• Earlier e-commerce entities used to engage in business to consumer e-commerce.
• The earlier entity having equity participation in marketplace entity or its group companies or having control of its inventory would be permitted to sell its product on the platform run by such market place.          

What are the new E-Commerce regulations?

The new e-commerce regulations are followed as-

• E-commerce companies running marketplace platforms cannot sell products through companies, and of companies, in which they hold an equity stake from 1 February 2019.
• The clarification puts a cap of 25% on the inventory that a marketplace entity or its group companies can buy from a vendor.
• India allows 100% FDI in the marketplace model, while FDI is not permitted in the inventory-based model.
• The e-commerce will not authorize any seller to sell any product exclusively on its platform.
• Any warranty/guarantee of goods and services sold will be the responsibility of the seller in the marketplace model.
• Warehousing, logistics, order fulfilment, call center, payment collection, and other support services may be provided by the e-commerce marketplace to its sellers.
• Sellers registered on its platform on a B2B basis will be entered into transactions with the e-commerce marketplace.
• Establishment of central consumer protection authority to redress consumer grievances.

What is the need for a policy?

The following reasons are followed as-

• E-commerce entities have to maintain a level playing field.
• To stop the direct and indirect influence of the e-commerce sites on the sale price of goods and services.
• All the vendors on the e-commerce platform should be provided with services in a fair and non- discriminatory manner. No seller can sell its products exclusively on any marketplace platform.
• The e-commerce growth has led to job creation, improvement, productivity and increased online presence of consumers.
• It is essential to be responsive to the underlying challenges to get benefit from these opportunities.
• There is a serious need for clearly laid-down rules for electronic commerce in the country.

What are the Repercussions?

Repercussions are followed as-

• No more heavy discounts

Consumers may no longer enjoy the heavy discounts which were earlier offered by retailers on occasions such as Diwali, Holi, and Christmas that have a close association with marketplace entities. Due to these new regulations, online shopping may not be affordable as it was earlier.

• No more exclusive launches

Being an exclusive vendor Amazon and Flipkart has its own perk like asking for a commitment to their marketing budget allowing them to price their product accordingly. Due to the new regulations now vendors like Amazon and Flipkart will not offer exclusive products on their website.

• Big relief to small retailers

The new e-commerce regulations have provided a big relief to small retailers because of the new regulations the sale of small retailers will also increase. The new regulations have closed the back door that has been blatantly exploited by larger companies and provide a level playing field for everyone.

• Relief to traditional brick trade runner and mortar stores

The new e-commerce regulations have provided relief to traditional brick trade runner and mortar stores because of the new regulations the giant e-commerce websites will not offer heavy discounts to consumers which is one of the main reasons consumer attracted towards these websites.

Now, due to this, the stores offering the same product will attract more customers because there will be no difference in the price and consumer likely to go to the stores and try the product and purchase it.

• Benefit to MSMEs

The MSMEs also gets benefit from the new e-commerce regulations because these companies will not face any discrimination in the market and even their products get easily sold out in the market.

What steps have Amazon and Flipkart has taken after witnessing the change in e-commerce regulations so far?

Morgan Stanley said that the new e-commerce regulations would increase the cost of doing business in India. However the situation is fluid, Flipkart could take a strike of 1.5% to 2% on earnings per share for the financial year ending March 2020.

The e-commerce giant had sought an extension to the February 1 deadline to comply with the rule, but the government had turned down the request.

The following steps have been taken by the Amazon so far and they are followed as-

After a noisy first week that witnessed Amazon pull some product listings from the website and shortly halt its same-day grocery delivery service Amazon pantry (Amazon pantry is an online supermarket where customers can buy households and grocery items.) The company has adjusted faster than anyone expected and all the listings which were earlier withdrawn were returned on the website.

Amazon has reportedly decreased its stake in Cloudtail, which is a joint venture and the largest vendor on the Amazon site from 49% to 24% and in turn, partner N.R. Narayana Murthy’s Catamaran Ventures lifted its interest to 76%.

This change means that now Cloudtail is no longer considered as an Amazon group company under India’s rules as it used to be earlier and making it once again eligible to sell on the platform. Similarly, Amazon is exploring the same cut to its ownership of Appario, which is also India’s largest retailers.

Cloudtail now also sell its inventories on different market places such as shopclues and snapdeal. Further Amazon is offering incentives to some large sellers by cutting commissions.

On the contrary leading rival, Flipkart is planning for a tie-up with large offline sellers and distributors. According to the sources, Flipkart may begin selling its products on the Flipkart platform through a third party in India, instead of directly listing on the website.

Another step which may be taken by e-commerce sites to deal with new regulations which bars them to have an equity stake in sellers on their platform is that they might have to offer subscription service for sellers in exchange for the support offered by them in terms of payments, logistics, etc.

The sellers who subscribe to that service wilfully will get better terms of listing their products for offering them at more competitive pricing. For example, Amazon Prime is a similar model at the customer front. As prime members are eligible for fast delivery of products of vendors falling under the prime category. This logistically makes it easier for Amazon to provide faster delivery of products to its prime members.

This arrangement would not be considered discriminatory because the offers to have orders fulfilled by Amazons is open to all vendors registered on the platform. Thus, where there is a clear difference between one set of vendors and others, it could be derived that the same would not be hit by the restrictions under the renewed FDI policy.

Are Amazon and Flipkart getting into Best Friends Agreement?

Best Friends agreement is an agreement which does not legally bind a company to do business with certain legal entities. Ravi Singhania, Managing Partner, Singhania & Partners said through Best Friends agreement, for instance, Amazon after divesting its equity can get investors to invest in the seller company that it will continue its support to the vendor however the investments will be done, investors.

Kartik Maheshwari, a technology attorney at Nishith Desai Associates said that best friend alliance is possible theoretically and is totally possible. He also included that it is a solid contention to be made by the autonomous vendor for such agreement that is endeavouring to assemble its image or develop and so on through the help received by the company.

Conclusion

The policy made by the government with the objective to maintain a level playing field and to provide a safeguard to the small retailers from the e-commerce giants. But these e-commerce giants are not going to easily surrender as they are looking for loopholes in the policy to take advantage of it and make things easy for them.

 Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.