On February 1, 2019, new e-commerce rules went into effect in India. Designed to even the playing field between brick-and-mortar businesses and e-commerce, the law changes sent many e-commerce stocks into a downward spiral. Amazon took one of the hardest hits. Walmart also suffered because they own 77 percent of popular shopping platform Flipkart. The new law has five different components.
Limits Vendor Access
The first part of the law says that marketplace entities like Amazon and Flikart must diversify its vendor base by not buying more than 25 percent of its products from a single vendor. This policy is not new. The government, however, has a record of looking the other way. They now must worry about elections coming up in April and May. Therefore, they may not be able to afford to ignore this part of the law that was first enacted in 2014. They may fear that demonetization and taxes may cost them the election.
The second part of the law saws that marketplaces cannot give customers discounts on any products. Like the first part of the law, this was put in place in 2014. The law says that e-commerce platforms must only provide a place where vendors and buyers can interact with each other. It must hold or control any of the inventory sold.
The law is designed to make transactions more transparent by stopping major companies from setting up numerous smaller companies. This is often done to trick customers into believing that they were dealing with someone other than the marketplace.
This aspect of the law is also designed to stop bottom feeders who often give deep discounts to customers just to stay in business while practicing questionable business ethics.
As an example, Amazon will no longer be able to exclusive offer products from companies that they control like retail giants Cloudtail and Appario. In all, Amazon has pulled over 1,000 products from its pages in India.
Marketplaces Cannot Sell Own Products
Marketplaces can no longer sell products with their company name on them. Big businesses like Amazon may see the greatest impact because they own several smaller companies under them. Some warn that this may have a major impact globally for companies who do a major part of their business in India. It may also create a more even playing field.
No More Exclusive Contracts
The law goes on to say that marketplaces, like Amazon and Flipkart, cannot order vendors to sell only on their platforms. It may be especially aimed at smartphone companies. Over 50 percent of all smartphone purchases in India occur online. Xiaomi and Oppo who are major suppliers in India had exclusive deals with Flipkart to sell their products. Now, these deals will be against the law.
Companies Must File Reports
Finally, the law says that companies must give the Reserve Bank of India a compliance report by September 30 annually. This may be the indicator proving that companies must take the new law seriously while in the past, they have been able to look the other way.
Even the day before the law went into effect, large retailers hoped to put implementation of the law on hold. Now, they say that they will have to obey it. Many hoped that after the elections that this law may disappear allowing business to continue as usual.