Walmart-owned Flipkart breaks silence on new e-commerce rules, calls for ‘broad market-driven framework’

Hit hard by the new e-commerce regulations, US retailer Walmart-owned Flipkart Thursday said the government should follow a consultative process in framing rules that have long-term implications, and any changes should be for driving the industry forward.

The comments came a day after the government appeared to have yielded to demands of domestic traders by putting in place new rules that would practically end discounts and cashback offers that online platforms with foreign investment were offering.

"Government policy changes will have long-term implications for the evolution of the promising sector and whole ecosystem. It is important that a broad market-driven framework through right consultative process be put in place in order to drive the industry forward," Flipkart said in a statement.

Flipkart and US-based Amazon -- the two largest players in the burgeoning Indian e-commerce sector -- are expected to be hit the hardest once the new norms come into effect from February 2019.

Amazon has said it is evaluating the circular.

Terming the new norms regressive, US-India Strategic Partnership Forum's (USISPF) President and CEO Mukesh Aghi said the amendment highlights the lack of transparency in policy making and is disruptive for business.

"The amendment to the FDI in e-commerce policy is regressive. The amendment announced by the government came out without any consultation with the multinational companies... This amendment highlights the lack of transparency in policy making and is disruptive for business as it creates unpredictability around business policy in India," he said.

Aghi said over the last few years, US companies have led investments into e-commerce platforms in India and have played a major role in helping Indian sellers and manufacturers in accessing domestic and international markets.

"This amendment to the FDI in e-commerce policy will most definitely have a negative impact on growth of online retail in India," he added.

The new rules bar online platforms from selling products supplied by affiliated companies, and from offering customers special discounts or exclusive products.

For retailers like Walmart, which shelled out USD 16 billion to buy 77 per cent stake in Flipkart, the new rules may hinder selling products under their own private brands and bar them from using their own supply-chain expertise and clout with retailers to drive down prices.

With the new rules clamping down on exclusive deals, partnerships seen in the past including those with electronic and smartphone brands like ASUS, OnePlus, BPL and others could be hit.

Underlining the contribution of the Indian e-commerce industry in transforming how consumers connect with sellers and local manufacturers, Flipkart said the sector has also provided tremendous value to the country and spawned new jobs.

"The e-commerce ecosystem created innovations in micro, small and medium enterprises (MSME) manufacturing, supply chain, warehousing, packaging and digital payments and has created thousands of jobs already," it added.

Emphasising that this is just the beginning, Flipkart said the industry is set to be a major growth driver for the Indian economy and create millions of jobs in the future.

Smaller players like ShopClues and Snapdeal have welcomed the move, saying the development will "close the back door" that has been "blatantly exploited" by larger companies and provide a level-playing field for all.

ShopClues CEO and co-founder Sanjay Sethi said the introduction of these new norms is an acknowledgement that "all the major foreign players have been consistently violating the spirit of the policy from day one".

"Almost all the clarification points mentioned in this policy can be directly attributed to an active violation by these foreign players....we are happy that this clarification will finally close the back door that has been blatantly exploited by these players," he added.

Snapdeal co-founder and CEO Kunal Bahl said these changes will enable a level-playing field for all sellers, helping them leverage the reach of e-commerce.

"There are some specific points that need greater clarity, especially the fact that an entity having 'equity participation' by e-commerce marketplace entity or its group company, is not permitted to sell its products on the platform run by marketplace entity," said Darshan Upadhyay, Partner at Economic Laws Practice.

Upadhyay added that this could result in all vendors and suppliers where the marketplace entity (or its group) have insignificant holding being ineligible for selling their products.

Instamojo CEO and co-founder Sampad Swain said while the earlier regulations were bound by high caps, MSMEs in the country will now get a fair opportunity to come and participate in the digital economy.

"This new development creates a level-playing-field for smaller players... Now, all the micro-merchants of our country can participate without the fear of being left out," he added.

The decision came in the backdrop of several complaints being flagged by domestic traders on heavy discounts being given by e-commerce players to consumers. Many sellers had voiced concerns that the e-commerce giants were using their affiliates and exclusive sales agreements to create an unfair marketplace and offering some products at deep discounts.

According to the current policy, 100 per cent FDI is permitted in marketplace e-commerce activities. It is prohibited in inventory-based model.

According to EY India National Leader (Policy Advisory and Speciality Services) Rajiv Chugh, e-commerce players will need to re-look their operating strategy in India.

"Going forward, the suppliers will not be permitted to sell their products on the platform run by such marketplace entity. This will impact back-end related wholesale Group entities and need to remove them from the e-commerce value chain. Time has come to look at franchise channels, rather than equity investments channels to do business in India," he said.