In a statement, the authorities also stated the businesses will be prevented from entering into exclusive agreements with sellers. The rules will be applicable
“An entity having equity participation by e-commerce market entity or its group companies, or using control on its stock by e-commerce marketplace entity or its group companies, won’t be permitted to sell its goods on the platform run by this kind of marketplace thing,” the trade ministry said in a statement.
E-commerce providers can make bulk purchases via their wholesale units or other group businesses that subsequently sell the goods to select sellers, like their affiliates or other companies with which they have arrangements.
Those vendors can then sell the goods to other companies or direct to customers, often at attractively low prices.
The regulations follow complaints from Indian merchants and traders, who say the giant e-commerce businesses are using their control over stock from their affiliates, and via exclusive sales agreements, to create an unfair marketplace which allows them to sell some goods at very reduced prices.
The All India Online Vendors Association (AIOVA) in October filed a petition with the anti-trust body Competition Commission of India (CCI) alleging that Amazon favours merchants that it partly owns, for example Cloudtail and Appario. The lobby group filed a similar request against Flipkart in May, alleging breach of contest rules during preferential treatment for select sellers.
Wednesday’s telling also stated that the cash back that customers get as an incentive while online shopping should not be based on whether the item was bought from an affiliate of the system or not.
The rules stated that services provided to sellers on an e-commerce system and from that entity’s affiliates should be performed so at arm’s length and at a reasonable and non-discriminatory method.
New principles will appease modest traders and farmers who fear U.S. businesses are creating a back door entrance into India’s retail marketplace and could squeeze out small corner shops that dominate Indian retailing.
The Confederation of All India Traders in a statement said that in the event the order is implemented in full then malpractices, predatory pricing policies and deep discounting by e-commerce players will no more happen.
CAIT secretary general Praveen Khandelwal said the new rules will place an embargo on the strategies adopted by the global players to dominate and control retail commerce in India through e-commerce.
In May, CAIT had raised objections to Walmart’s $16 billion acquisition of Flipkart saying the deal would create unfair competition and lead to predatory pricing.
The regulations build on existing rules under which foreign investors can obtain 100 percent of e-commerce companies, with the exception of a model based on inventory from which they’re barred.
Amazon India said it is currently assessing the rules, although Flipkart did not immediately respond to a request for comment.