With a strong grip on e-commerce regulations, there has been a fight between foreign companies Amazon and Indian companies like Flipkart, Reliance, and Tata Group on an intense note. Jefferies (foreign brokerage) has said in one of his notes that the proposed rules now target vendors through indirect ownership.
The e-commerce industry of India faces complex regulations too as per the note. Single brand retail and B2B have a stable framework but the FDI in inventory-led-e-com. Is prohibited. However, 100% FDI has been allowed in the marketplace where regulations are evolving the rules of 2018 pressuring Amazon to reduce stakes as a key seller.
Last year in July 2020, some new regulations were initiated to protect customer interest. However, in 2021, those rules have been amended at a draft stage and made open to public comments by the 6th of July. Thy has been made applicable to both foreign and Indian-backed platforms with more relevance given to Flipkart and Amazon. Tata Sons chairman Chandrasekaran talks about strengthening the e-commerce chain along with traditional distribution. There has been an increase in the scope of related parties who are included in the common chain of directors, each having more than 10% common ultimate shareholders with 5% shareholding for individual entities.
The marketplace cannot sell services to any vendor on its platform and similarly, any brand or name related to a marketplace cannot be used for the product. For an instance, Amazon Alexa subject to fall back when the vendor fails to perform the flash sale of the product. As a marketplace in 2013, Amazon started its journey but faced several issues on FDI. It entered into a partnership with Catamaran Management Services in 2014 which was promoted by Narayana Murthy co-founder of Infosys. This partnership owned 51% while Amazon-owned 49% in Prion Business which owns Cloud tail India, which is again the key vendor of Amazon.
In 2018, Amazon was forced to reduce its stake to 24% with Catamaran as per the regulations. Till 1996, any form of retail of FDI was banned in India but 100% FDI was allowed in 1997 in wholesale cash & carry. This was also stretched to B2B e-commerce in the year 2000. 51% FDI was allowed in single-brand retail in 2016 which was later made 100% with some restrictions in local sourcing in 2012.
From 2015, single-brand retailers were able to run B2C eCommerce and FDI was allowed in multi-brand retail from prior 2 years already. Around 11 states and 1 union territory allowed FDI to give final approval on eCommerce models. By 2016, although FDI secured e-commerce policy in the marketplace the Inventory-led model was restricted. With evolving regulations of the marketplace, several aspects have been transformed such as control over inventory, direct or indirect investments, etc as per 2018 regulations.
Certain alternate structures have been created by the industry to stick to the regulations until 2017 such that in 2018, the lawmakers were prompted to enforce their grip by making certain restrictions like:
- Direct or indirect ownership in vendor
- Level playing field without any vendor preference
- Inventory control that covered cases where a vendor buys more than 25% of its products either directly or indirectly as group firms of the marketplace
- And, no exclusive partnership with vendors
Amazon Inc. and India’s Tata Group warned government officials that the tougher rules and plans for online retailers are likely to pose a major impact on their business models. As per a meeting organized by the consumer affairs ministry and the government’s investment promotion arm, Invest India, serious concerns and confusion regarding the proposed rules have been raised. The government’s new e-commerce rules that were announced on 21st June promotes consumer protection and have caused concern among the country’s online retailers such as Amazon and Walmart Inc.’s Flipkart. New rules limiting the flash sales of Flipkart and Amazon to review their business structure may incur increasing costs for other domestic rivals including JioMart, BigBasket, Snapdeal, and Reliance Industries.