Who will the new e-commerce rules benefit?

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Foreign-owned online marketplaces are likely to suffer from the new e-commerce rules that will take effect from February 1. From the word go, Flipkart and Amazon have been the two key names in the conversation around introducing stricter rules.

While Walmart spent 16 billion dollars to acquire the Indian group Flipkart, Amazon has committed an estimated 7 billion dollars to build its operations in India.  Although these foreign-owned firms have invested considerably in developing their local businesses in India, they are likely to take a hit from the newly introduced regulations.

The new rules prohibit these e-commerce marketplaces from selling goods of companies in which they hold an equity stake. The regulations also state that these marketplaces cannot directly or indirectly influence the sale price of goods and services. This could put an end to the seasonal sales promotions that have become national events today.

The new regulation intends to benefit small businesses and domestic retailers that find it difficult to challenge their large, deep-pocketed foreign rivals. Domestic traders are also protected from foreign multi-brand retailers who are prohibited from selling directly to consumers. Large foreign groups like Walmart and Metro Cash and Carry are only allowed to operate B2B wholesale businesses in India. However, investors have begun to circumvent these regulations.

Giant e-commerce marketplaces are using complicated structures to operate in India. They have established joint ventures with local investors that operate as inventory-holding companies. Some examples are Flipkart’s Omnitech Retail and RetailNet, and Amazon’s Appario and Cloudtail Retail. Small domestic traders have long complained that their bigger rivals use exclusive sales agreements and inventory control from their affiliates to sell some products at very low prices. This creates an unfair marketplace. With the passage of the new order, retail companies selling more than 25 percent of their goods online to a single e-commerce marketplace will be deemed to be controlled by it, further being prohibited to sell on its platform.

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