New e-commerce regulations: Happiness discounted?

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New e-commerce regulations: Happiness discounted?

New e-commerce regulations: Happiness discounted?

Brian Fernandes   ¦    Feb 01, 2019 03:28:24 PM (IST)

New e-commerce regulations: Happiness discounted?-1The new government rules for the e-commerce marketplace which become effective today are likely to hit Amazon and Flipkart the most as they control almost 60 per cent of the market. But the middle-class online shopper who is always looking to save a buck or get value for his limited monies will also be hit badly. They are unlikely to get the deep discounts they are used to from exclusive sales or mass sales during festivals where volumes make up for the discounts.

Arun, an avid online shopper from groceries to mobiles (he hardly ever goes to the retail market) says, this is a big disappointment. He agrees however that it will level the playing field among retailers. "But who wants a level playing field, I don't?" he asks. "I want value for my money and the best deal I can get, without going from shop to shop"

Under the new rules, online retailers are barred from selling products in which they have a stake. They also cannot enter into agreements for the exclusive sale of products - which lead to a captive audience and higher volumes thus providing comfort for deep discounts. A vendor too, cannot procure more than 255 of the of the products from group companies of the same market place where they intend to sell them.

The government's new rules for foreign e-commerce platforms may be designed to protect local companies from Amazon and Walmart, but consumers are likely to suffer the collateral damage. Online marketplaces must treat all vendors equally by providing the same terms, the commerce ministry said in December when it formulated the rules

What does this mean for you and me? This means barring e-commerce companies from forcing a seller to feature products exclusively on their platforms, and limiting ownership or control over the marketplace's inventory. The government says the changes will promote fair trade and curb foreign companies' influence in setting domestic prices.

This could mean that platforms offered by e-commerce giants such as Amazon and Walmart's Flipkart may be prohibited from offering their own goods - such as the Echo smart speaker - at heavy discounts, while allowing rivals the opportunity to sell previously proprietary products.

"Consumers in India will most likely bear the brunt of these changes and be negatively impacted," Jennifer Bartashus, a retail industry analyst for Bloomberg Intelligence was quoted by NDTV as saying. "Prices will go up as discounts evaporate, and product options and availability may contract as e-commerce marketplaces strive to remain compliant with the new rules."

Meanwhile, as expected, eE-commerce rules that went into effect in India on Friday caused widespread disruption for Amazon.com who began to comply with the norms late thursday night, after the Governement refused to exend time for compliance anymore. Amazon’s own range of Echo speakers, its Presto-branded home cleaning goods and other Amazon Basics products vanished from the website according to reports in the India Today.

Amazon and Flipkart did make presentations before the finance and commerce ministries to contest the new rules and asked for the extension of time till the middle of the year to implement them reports say but to no avail. The Department for Promotion of Industry and Internal Trade (DPIIT) said it had received some representations to extend the deadline of February 1 2019 to comply with the conditions contained in the press note 2 of 2018 series on FDI Policy in e commerce. "After due consideration, it has been decided with the approval of the competent authority, not to extend the deadline". The Government seems to have considered favourably the representation of the Confederation of All Indian Traders.

It would appear that as the elections approached, the government had to weigh its priorities carefully - it was the etailers vs the brick and mortar retailers, vs the online consumer and they chose the former. How the new rules will play out in the future for the economics of these companies is yet to be seen, especially as Reliance is all set to enter the space in a big way. An announcement to this effect was made at the Vibrant Gujarat summit by the Reliance Chairman Mukesh Ambani. Either way, the promoters of Flipkart took the cake, just when it came out of oven. As it cools, it may have to go off the Walmart shelves.

Walmart in May spent $16 billion to acquire Amazon's primary rival in India, online retailer Flipkart. China's Alibaba Group has a stake in the country's largest online grocer, BigBasket, and an investment in popular online retailer called Paytm E-commerce Pvt.

Currently, India's regulation means that foreign investors are prohibited from running online platforms directly, barring them from selling anything other than food directly to consumers.

Reports appearing in the media say the rules could be a blow for the US companies, which are attempting to crack India's consumer market and capture its growth potential. Amazon lost an estimated $3 billion on its international efforts last year, and analysts believe most of that was in India.

In the ultimate analysis, the new rules are the result of both business acumen and politics. They could help Prime Minister Narendra Modi's Bharatiya Janata Party win the support of local traders - a key voting bloc for the party that suffered defeats in state elections this month. The Online marketplace is limited to the smartphone elite and their votes may not matter much in the big picture.

"It's a big achievement after a long struggle," Praveen Khandelwal, secretary general of Confederation of All India Traders, said in a statement. "If it is implemented in proper spirit, malpractices and predatory pricing policy and deep discounting of e-commerce players will be a matter of past." NDTV quoted him as saying soon after the draft rules were notified.

Prime Minister Narendra Modi’s government is keen to appease this segment in the run-up to a general election due by May and they seem to have achieved their objective.