Govt Tightens Selling Norms For E-Commerce Firms

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New Delhi: In a move that may come as a major setback to e-commerce players, the Ministry of Commerce and Industry Wednesday said that e-commerce companies running marketplace platforms, like Amazon and Flipkart, cannot sell products on their platform through companies where they hold an equity stake.

“An entity having equity participation by e-commerce marketplace entity or its group companies, or having control on its inventory by e-commerce marketplace entity or its group companies, will not be permitted to sell its products on the platform run by such marketplace entity,” said the ministry in a statement offering clarity on FDI Policy on e-commerce. The decision will come into effect from February 1, 2019.

As a result of this decision, retailers such as Cloudtail India may not be able to sell their products on the marketplace run by companies that have ownership in such retailers.
While a source close to an e-commerce company said that “Amazon may have to sell its stake in Cloudtail India, in order to allow Cloudtail to sell their products on Amazon’s platform,” there are some who feel that there may be some leeway available with the companies. “These clarifications will have a major impact on the major e-commerce players since most of them primarily source goods from sellers who are primarily relevant to such e-commerce players.

However, the language of the clarification seems to grant leeway (to a certain extent) to entities which are step down subsidiaries of the entity in which the e-commerce entity or its group companies hold equity. Nonetheless, these clarifications will definitely have major repercussions on the business model of such e-commerce players,” said Atul Pandey, partner at Khaitan & Co.