New e-commerce rules regressive, will harm consumers: USISPF

The US-India Strategic Partnership Forum (USISPF) has dubbed the new e-commerce rules as "regressive" and said that the changes would harm consumers, create unpredictability and have a negative impact on the growth of online retail in India.

The Forum asserted that "it is not the government's business to micromanage businesses" and alleged that the amendments announced came out without any consultation and are akin to changing rules in the middle of the game.

Earlier this week, the government appeared to have yielded to demands of domestic traders and put in place new norms, which would end discounts and cashback offers that online platforms with foreign investment were offering. The new rules are set to come into effect from February 2019.

"The amendment to the FDI in e-commerce policy is regressive. It harms the consumer, who is ultimately the king in any retail environment. It is not the government's business to micromanage businesses. This amendment bars Indian manufacturers and sellers from effectively competing in the global online marketplace," USISPF President and Chief Executive Officer (FPO) Mukesh Aghi said in a statement.

He further stated that the amendment "highlights the lack of transparency in policy making and creates unpredictability".

USISPF -- which highlighted how American companies have led investments into e-commerce platforms in India and facilitated job creation -- is consulting its members on the course of action and plans to meet government officials next week on the matter.

With about a month to comply, American retailer Walmart-backed Flipkart and US-based Amazon -- the two largest players in the Indian e-commerce sector -- would be hit the hardest.

Smaller traders have, in the past, cried foul alleging that preferential treatment was given to certain sellers that are affiliates of these larger online marketplaces. This, they said, created an unfair marketplace.
Amazon India, in an e-mailed statement Friday, said the company has "always operated in compliance with the laws of the land" and it is evaluating the new guidelines "to engage as necessary with the government to gain clarity".

The company has committed an investment of USD 5 billion -- a large chunk of which has already been pumped in across various entities (like wholesale, marketplace and payments) that it operates in India.

Flipkart, which saw Walmart picking up 77 per cent stake for a whopping USD 16 billion earlier this year, has said the government should follow a consultative process in framing rules that have long-term implications, and any changes should be for driving the industry forward.

The new rules, announced Wednesday, bar online platforms from selling products supplied by affiliated companies, and from offering customers special discounts. For retailers such as Walmart, the new rules may hinder selling products under their own private brands.

Market watchers said that so far, wholesale companies controlled by Amazon (Amazon Wholesale) and Flipkart (Flipkart India) would buy goods in bulk at cheaper rates from manufacturers, which would then be sold on the online marketplaces through 'select sellers' (like Cloudtail) who would also offer discounts and cashbacks.

The new rules clamp down on exclusive deals; this could cast a cloud on partnerships seen in the past including those with electronic and smartphone brands like ASUS, OnePlus, BPL and others.

However, smaller players such as ShopClues and Snapdeal have welcomed the move, saying the development will "close the back door" that has been "blatantly exploited" by larger companies and provide a level-playing field for all.

ShopClues CEO and Co-Founder Sanjay Sethi said the introduction of these new norms is an acknowledgement that "all the major foreign players have been consistently violating the spirit of the policy from day one".

"Almost all the clarification points mentioned in this policy can be directly attributed to an active violation by these foreign players....We are happy that this clarification will finally close the back door that has been blatantly exploited by these players," he added.

Snapdeal Co-Founder and CEO Kunal Bahl said these changes would enable a level-playing field for all sellers, helping them leverage the reach of e-commerce.

According to the current policy, 100 per cent FDI is permitted in marketplace e-commerce activities. It is prohibited in inventory-based model.