Ecommerce companies face fresh trouble as government may ban related party sales

In what may result in recent issues for ecommerce and food-delivery companies, the Indian authorities might difficulty guidelines stipulating that ‘associated occasion’ or ‘associated enterprises’ of internet marketplaces should not sell products or services to a registered merchant on their platforms, multiple people briefed on the matter told ET.

The Consumer Affairs Ministry is leading the latest round of deliberations which were held earlier this month, sources added. There has also been an inter-ministerial discussion with the Department for Promotion of Industry and Internal Trade (DPIIT) and The Ministry of Electronics and Information Technology ( MeitY).

If these discussions eventually fructify into regulations, it will essentially mean that companies like Flipkart and Amazon India cannot offer their in-house logistics services, Ekart and Amazon Transportation Services, to their merchants, the people cited said.

Even food-delivery firms, which offer their delivery fleet to restaurant partners, would come under the purview of a proposed clause on related parties or associated enterprises, people aware of the matter said.

Online marketplaces do not sell products to sellers and they no longer own any stake in seller firms, after the government tightened rules in 2019. This led to Amazon discontinuing Cloudtail as a seller on its marketplace. It also announced that another joint venture partner firm Appario Retail, too will cease to exist later this year.

The thrust of the inter-ministerial discussions in recent weeks have reiterated the earlier stand taken by the government that online marketplaces should not be allowed to sell private labels on their platforms.

In fact the talks, this time around, have also discussed rules stipulating that in-house branding should not be licensed to third-party sellers who will sell it online, people aware of the matter said. For instance, Amazon Solimo cannot be licensed to outside vendors if the ongoing inter-ministerial discussions fructify in new rules.

While the proposed draft regulations were first discussed nearly two years ago in 2021, etailers like Walmart’s Flipkart, Amazon and even Tata Group had raised red flags over some of the above-mentioned clauses being discussed that will affect operations of ecommerce firms as well as their brands.

According to a report in The Act Daily News, dated March 10, the Indian government is also mulling a ban of inventory-based ecommerce sales for both domestic and foreign etailers.

“The Consumer Affairs ministry is leading the discussions on the matter. Companies are checking the implication of the ‘related party’ or an ‘associated enterprise’ clause and legality. It’s after all nonetheless clear these clauses, if finalised, could have a direct and drastic affect on ecommerce platforms,” one of many individuals conscious of the discussions mentioned.

For corporations like Flipkart and Amazon, majority of their orders are serviced by way of Ekart and Amazon Transportation Services, respectively. In reality, Amazon lately launched Prime Air in India for sooner supply of products in metro cities, as reported by ET.

“Food delivery firms can’t also then service orders. Feedback informally has been given that this would have a severe impact,” this particular person added.

The authorities had first launched the draft India e-commerce rules on June 21, 2021 which triggered backlash from the trade. The authentic proposals had even included a blanket ban on common flash gross sales. Over the previous three weeks, there was a revival in talks on finalising the ecommerce guidelines, a number of sources added.

“There were presentations made to the government recently on how marketplaces are also using inventory-like structure,” one of many sources talked about above added.

During the earlier spherical of consultations, which had occurred again in 2021, one of many largest food-delivery platforms had argued in opposition to the proposals looking for to ban preferential logistical companies, suggesting that provisions would place an “onerous responsibility on marketplace ecommerce entities to ensure that a third-party fulfills its obligations accurately”.

According to sources, two entities can be thought-about related enterprises, if one enterprise holds direct or oblique financial participation by way of fairness or in any other case, or if they’re associates. Here, being associates means management of two entities immediately or not directly being with one particular person or entity.

Emails despatched to the Ministry of Consumer Affairs, Flipkart, Amazon India, Swiggy and Zomato didn’t elicit any response as of Monday press time.

In-house labels, different guidelines

The newest discussions have additionally encompassed some points corresponding to ecommerce companies shouldn’t be utilizing any of its platform knowledge which may give distinctive insights to its related enterprises resulting in any unfair benefit. While the precise nature of those ‘benefits’ haven’t been spelt out, a typical instance is that if a market is introducing in-house manufacturers in product classes doing effectively on the platform.

“While the talks have happened, they (government) are treading cautiously this time… conversations have taken place with some of the etailers informally,” one of many particular person briefed on the matter mentioned.

Offline merchants and retailer homeowners have been complaining to the federal government that etailers use numerous knowledge factors by way of their very own platforms to give you new services and products placing offline shops at a drawback.

Ecommerce companies, to counter these prices, have been making an attempt to onboard offline kirana shops on their marketplaces to take them on-line whereas sustaining they continue to be compliant with related legal guidelines of the nation.

Private labels, which had been scaled closely by etailers pre-pandemic, have drawn criticism from offline merchants as effectively. However, ecommerce arm of homegrown enterprises like Tatas and others would even be impacted as per the thrust of the present discussions which can lead to closing guidelines that no market ought to immediately or not directly promote personal labels or license them to sellers in India.

Flipkart, Amazon have their very own labels like Amazon Basics, Smartbuy, MarQ amongst others however Tatas additionally promote a number of grocery merchandise on their Tata Neu app in addition to on BigBasket–the place the conglomerate owns a majority share.