- Jul 31, 2021
As eCommerce regulations are tightened, fight between foreign companies Amazon, Flipkart and Indian companies Reliance, Tata Group is set to intensify.
Foreign brokerage, Jefferies said in a note, “The proposed rules now target indirect ownership in vendors, own label, flash sales. Fight between foreign cos (Amazon, Flipkart) and Indian cos (Reliance, Tata Grp) is set to intensify”.
India’s e-commerce industry faces complex regulations, the note said. While B2B and single-brand retail have a stable framework, FDI in inventory-led e-comm. is prohibited. 100% FDI is allowed in the marketplace but regulations are evolving – 2018 rules pushed Amazon to reduce stake in a key seller.
In July-2020, new regulations were enacted with an intent to protect customer interest. However, in 2021, there have been amendments to those rules, still at a draft stage and open to public comments until 6-July – these are applicable to both Indian and foreign-backed platforms, but seem more relevant for Amazon and Flipkart, based on our reading, Jefferies said.
Increase in the scope of related parties to now include common chain of directors, more than 10% common ultimate shareholders, 5% shareholding in related entities etc.
Related party, as defined above, cannot become a seller on the platform and also cannot do anything that e-commerce entity itself cannot do.
Marketplace cannot sell goods or services to any vendor on its platform. “Marketplace name or brand cannot be used for the product – ‘Amazon’ Alexa for example, in our view; • Marketplace subject to fallback when vendor fails to perform; flash sale favouring certain vendors only is not allowed etc”, the note said.
Amazon started in 2013 as a marketplace but faced issues on FDI. In 2014, Amazon entered into a partnership with Catamaran Mgmt. Services (promoted by Infosys co-founder Narayana Murthy), which owned 51% while Amazon-owned 49% in Prione Business which owned Cloudtail India, the key vendor on the Amazon India platform. However, the 2018 regulation pushed Amazon to reduce its stake to 24% with Catamaran now at 74%.
FDI in any form of retail was banned in India until 1996. However, 100% FDI was allowed in wholesale cash and carry in 1997 which was also extended to B2B eCommerce in 2000.
In 2006, 51% FDI was allowed in single-brand retail which was made 100% in 2012 with some restrictions (30% local sourcing etc.).
Single brand retailers have been also been allowed to run B2C eCommerce since 2015. In 2013, FDI was allowed in multi-brand retail (with some restrictions). However, the final approval was left to individual states and today, around 11 states and 1 Union Territory allow FDI, while the rest do not. eCommerce models.
In 2016, the e-commerce policy allowed 100% FDI in marketplace but banned the Inventory-led model. Over the years, the marketplace regulations have evolved covering aspects like control over inventory and direct/ indirect investments in vendors. 2018 regulations.
The industry managed to create alternate structures in order to adhere to the regulations until 2017. This prompted lawmakers in 2018 to tighten their grip by restricting: a) control over inventory which covered cases where a vendor buys more than 25% of its products directly or indirectly (group firms of the marketplace); b) direct or indirect ownership in vendor; c) level playing field and no preference to any vendor; d) no exclusive partnerships with vendors.