India's New E-commerce Rules: Addressing Cheating and Consumer Concerns

India Considers New E-Commerce Regulations

On Monday, India put forward a proposal to prohibit flash sales on e-commerce platforms and restrict affiliated businesses from operating as sellers. This move signifies a tightening of regulations that could potentially impact the future growth of companies like Amazon and Walmart’s Flipkart within the world’s second-largest market.

Concerns from Brick-and-Mortar Retailers

The proposal, released by India’s Ministry of Consumer Affairs, arises as traditional retailers in India have increasingly voiced concerns regarding practices they deem unfair, employed by Amazon and Flipkart as they expand their operations nationwide.

Restrictions on Flash Sales

India’s Ministry of Consumer Affairs suggests that e-commerce companies should be prevented from conducting flash sales. These sales events, comparable to Black Friday and Cyber Monday in the United States, are particularly popular during India’s festive seasons.

During flash sales, e-commerce platforms typically experience significant surges in customer orders, driven by substantial discounts offered by brands on their products.

Level Playing Field for Sellers

The ministry stated that certain e-commerce entities are limiting consumer options through “back-to-back” or “flash” sales. In these scenarios, a seller on the platform lacks inventory or order fulfillment capabilities, instead placing an immediate order with another seller controlled by the platform.

This practice, according to the ministry, hinders a fair competitive environment, ultimately restricting customer choice and potentially increasing prices.

Compliance and Grievance Redressal

Mirroring recent IT regulations, India is also proposing that e-commerce firms designate a chief compliance officer. They must also appoint a nodal contact person for round-the-clock coordination with law enforcement and officers to ensure adherence to directives.

Furthermore, a resident grievance officer would be required to address consumer complaints on the e-commerce platform. This aims to strengthen compliance and improve the grievance resolution process.

Information Sharing with Government Agencies

The proposal also mandates that e-commerce entities provide government agencies with requested information within 72 hours. This is for purposes of identity verification, crime prevention, investigation, prosecution, or addressing cybersecurity incidents.

Potential Ban on Private Labels

The new proposal could also lead to a prohibition of in-house or private label brands operated by Amazon, Flipkart, and other e-commerce businesses.

E-commerce firms would be required to ensure that related or associated parties are not listed as sellers directly to customers on their platforms. The proposal emphasizes that related entities should not engage in activities the e-commerce company itself cannot undertake.

Existing Inventory Restrictions

Currently, Indian regulations prevent e-commerce firms from holding inventory or directly selling to consumers. To circumvent this, companies have utilized joint ventures with local firms that manage inventory.

Company Responses

Amazon, having invested over $6.5 billion in its Indian operations, stated it is reviewing the proposed policies. Flipkart, acquired by Walmart for $16 billion in 2018, did not offer an immediate response.

During a court hearing on Monday, a Flipkart representative indicated that the company sees no issue with offering fee reductions to sellers who lower product prices.

Industry Feedback and Complaints

The ministry is seeking industry feedback on the proposal for the next 15 days, following the receipt of “several complaints regarding widespread cheating and unfair trade practices within the e-commerce sector.”

Country of Origin and Domestic Goods

The new proposal also requests e-commerce firms to implement a system for identifying the country of origin for products listed on their platforms. They should also suggest alternatives to promote opportunities for domestic goods.

Ongoing Investigations and Fundraising

This announcement coincides with Flipkart’s discussions to raise up to $3 billion and explore potential public market offerings. Both Amazon and Flipkart are currently subject to an ongoing antitrust investigation in India.

Previous Regulatory Changes

This represents the second significant amendment proposed by the Indian government in recent years. In 2018, similar stricter rules for e-commerce firms were proposed, leading Amazon and Flipkart to delist hundreds of thousands of items and restructure their investments in affiliated companies in early 2019.

Allegations of Preferential Treatment

The current proposal follows reports, citing company documents, that Amazon provided preferential treatment to a select group of sellers in India. These reports also alleged that Amazon misrepresented its relationships with these sellers and used them to bypass foreign investment regulations.

Calls for Action

The Confederation of All India Traders, a prominent Indian trade group representing millions of brick-and-mortar retailers, previously called for a ban on Amazon in India following these reports. India’s commerce ministry also indicated it was reviewing the matter at the time.