Major business model rejig on anvil as e-comm deadline stays put

Chennai: New e-commerce rules have been implemented without postponing the deadline, much to the surprise and disappointment of majors in the retail market Amazon and Walmart-backed Flipkart.

The firms will have to undertake massive restructuring of their operations to ensure compliance, thereby resulting in losses amounting to thousands of crores. According to a CRISIL report, nearly 35-40 per cent of e-retail industry sales amounting to Rs 40,000 crore could be impacted due to the tightened policy.

Announced in December 2018 under Press Note 2, the new regulations will bar online marketplaces, that are backed by foreign investments, from selling products of the companies where they hold stakes in, as well as ban exclusive marketing arrangements.

Just as Amazon and Flipkart were looking for some compliance from the government’s side on implementation of new rules, the Department for Promotion of Industry and Internal Trade (DPIIT) said on Thursday that it “after due consideration, it has been decided, with the approval of the competent authority, not to extend the deadline”.

The firms are reportedly said to have started working on their ‘Plan B’ in case the deadline wasn’t extended.

One of the clauses in the press note states that the inventory of a vendor will be seen as controlled by a marketplace, if over 25 per cent of the vendor’s purchases are from the marketplace entity, including the latter’s wholesale unit.

Seeking clarifications

Amazon, which will take a major blow with the implementation of the rules has stated that it will continue to engage with the government to seek clarifications and work towards minimising impact on its customers and sellers.

“While we remain committed to complying with all laws and regulations, we will continue to look to engage with the government to seek clarifications that help us decide our future course of action as well as minimise the impact on our customers and sellers,” the PTI reported an Amazon spokesperson to have said.

Reports state that restructuring of exclusive partnerships and taking care of other aspects so as to ensure compliance have begun in both firms, Flipkart included. Flipkart has to yet comment on the issue.

Betting big on Indian market, Amazon had committed an investment of over $5 billion, while Walmart made its biggest bet pumping in $16 billion for 77 per cent stake in Flipkart last year.

Even the US-India Strategic Partnership Forum (USISPF) had stated the new rules as ‘regressive’ and said these changes would ‘harm consumers, create unpredictability and have a negative impact on the growth of online retail in India’.

New methods are sure to be taken up by e-commerce firms in India in the wake of the new regulations. The adoption of such business models might bring into light the loopholes.

To prevent such an eventuality, traders’ body Confederation of All India Traders (CAIT) demanded that a special investigation team be constituted to investigate business model of major e-commerce players.

Small players rejoice
However, the loss of foreign backed firms is a gain for small firms and traders. They had in the past alleged that their business was hurt due to huge discounts offered by e-commerce firms.

Snapdeal and ShopClues, one of many small players in the e-retail industry have welcomed the development.

CEO and co-founder of ShopClues, Sanjay Sethi, said, “It sends (a) strong message to the violators that legal jugglery, exploiting loops holes and in general disregard for the law will have to stop now. Today, millions of MSMEs can breathe a sigh of relief.”

Snapdeal has said, “Adherence to rule of law will allow India to create a genuine and robust e-commerce sector, which will ensure lasting gains for both buyers and sellers.”

Praveen Kumar S