Economy

India’s new e-commerce law ends retailer exclusivity for new smartphones

India’s new e-commerce law ends retailer exclusivity for new smartphones

India late previous year modified foreign direct investment (FDI) rules for its burgeoning e-commerce sector that has attracted Walmart Inc and Amazon.com Inc, creating new hurdles for both global retail giants. The new set of rules will minimise malpractices and pricing policies that favour specific sellers and their exclusive retailers. The e-commerce market in India has more than tripled since 2015, powered by smartphone penetration and favorable demographics with a median age of 28. Both companies have wholesale units that bulk purchase goods and sell them to vendors listed on their platform.

With the inception of this rule, Xiaomi will no longer be able to sell their smartphone with exclusivity on Flipkart and the same applies to OnePlus on Amazon.

The private labels Amazon India pulled out from the local website include clothing brand Symbol, home and kitchen essentials and dry grocery brand Solimo as well as all Amazon Basics products such as bags and luggage. While we are sure that Amazon and Flipkart will find a way out of this and still turn a profit, Indian consumers should definitely brace themselves to feel a pinch, one way or the other.

While Amazon has asked for time until June 1 this year, Flipkart has asked for six months. The newly renamed Department for Promotion of Industry and Internal Trade (DPIIT) on Thursday made it clear it was not going to give firms any extension to the February 1 deadline to comply with the conditions contained in the Press Note 2 on FDI Policy in e-commerce.

But a vendors' association said these e-commerce giants had enough time to start making changes to their businesses instead of waiting till the deadline. Amazon reportedly told the DIPP that it would be hard for the company to comply with the rules by February 1 as it involves extensive overhauling of its business model and systems.

Industry experts pointed out that many partnerships between these e-commerce giants and their sellers are being tweaked to ensure that the online marketplaces are in compliance with the new rules.

Flipkart was likely to create a so-called "middle layer" firm - in which it would have less than a 25 percent shareholding - between its wholesale arm and vendors on its marketplace, two sources familiar with the matter told Reuters.

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The companies had also highlighted that they have committed billions of dollars to the Indian market and that these investments could be at risk.

The government also prohibited e-commerce companies from entering into an agreement for exclusive sale of products.

Numerous items sold by Amazon vendors such as Cloudtail, in which Amazon holds an indirect equity stake, were no longer available on its India site.

The logo of India's e-commerce firm Flipkart is seen in this illustration picture taken January 29, 2019.

The Bengaluru-based company added that it remains committed to compliance "despite the significant work that is required to change our supply chains and systems".

The new rules also stipulate that an e-commerce marketplace, as well as any companies the marketplace has equity stakes in, should provide services such as fulfilment, logistics and payments to all sellers on the platform in a fair manner.


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