Modi’s e-commerce policy: Here are the winners and losers

The recent tightening of norms for online marketplaces with foreign investment are going to help and hinder many. A new rule inserted in the policy bars any entity related to ecommerce platforms from selling on that site and imposes a limit on how much one vendor can sell on a particular portal. The policy also prohibits ecommerce platforms from giving any preferential treatment to any supplier.

Cashbacks, exclusive sales, brand launches, preferential services or programmes such as Amazon Prime and Flipkart Plus could run into difficulties under the new dispensation that seeks to ensure that these platforms are truly impartial marketplaces.

Here are the losers:

The big boys
Obviously, the tightening of norms will hit big ecommerce players Amazon and Flipkart. They had been able to lure customers from brick-and-mortar business with deep discounts. That won’t be possible now. “It looks like someone has studied the business models of Amazon and Flipkart, and introduced clauses to systematically kill the two companies, especially at a time when ecommerce companies are providing jobs and investing in an ecosystem in India,” a senior executive at a foreign ecommerce player told ET.

Related parties
The policy says that an entity having equity participation by ecommerce marketplace entity or its group companies, or having control on its inventory by ecommerce marketplace entity or its group companies, will not be permitted to sell its products on the platform run by such marketplace entity. This effectively prohibits any entity related directly or indirectly from selling on a platform. With the new norms, Cloudtail can’t sell on Amazon. It can’t be given favourable terms for warehousing or logistics. Amazon India’s largest seller, Cloudtail, is a joint venture between NR Narayana Murthy’s Catamaran Ventures and Amazon.

Ally brands
Another addition to the policy tightens inventory-based provisions. Inventory of a vendor will be deemed to be controlled by ecommerce marketplace entity if more than 25% of purchases of such vendor are from the marketplace entity or its group companies. This will prevent any brand or supplier aligning exclusively with one marketplace, as is usually the case with many mobile or white goods brands.

Online buyers
Of course, people who buy goods online will no longer get deep discounts. They will also not get other services such as free or faster delivery and cashbacks. Ecommerce marketplaces or entities in which they have direct or indirect equity participation or shared control have to provide services to vendors on the platform at arm’s length and in a fair and non-discriminatory manner. This could put to an end to selective promotional schemes such as cashbacks or faster delivery, which will be deemed unfair and discriminatory under the new policy.

Some small sellers
Since the policy restricts vendors from selling more than 25 per cent of products on an e-commerce platform, it will discourage many small entrepreneurs, especially home businesses, that thrive even without brick-and-mortar operations. These small vendors will need to enhance production capacity and invest in inventories to meet the new requirement.

The fintech industry
The new guidelines could have indirect effect on digital payments and the broader fintech industry, especially regarding non-discriminatory pricing. The new norms on non-discriminatory pricing has the potential to be extended to exclusive partnerships that e-commerce platforms strike with banks and payment companies on specific products or with specific retailers only.

Impact on investment and jobs
The new guidelines will discourage foreign investment. While Amazon has put billions of dollars into its India operations, Walmart spent $16 billion this year to buy Flipkart. While Amazon and Flipkart were thriving, they were creating a large number warehouse and supply jobs. The restrictions on them might dampen their business growth and thus hit investment and reduce jobs.

Here are the winners…

Brick-and-mortar sellers
The biggest winners from the new guidelines will be the traditional brick-and-mortar sellers. In the past few years, online marketplaces had hit the brick-and-mortar hard. They had started luring away so many customers with discounts and cashbacks — and of course the ease of buying without stepping out — that brick-and-mortar retail was seen to be dying off soon. The new guidelines restricting discounts and cashbacks will help brick-and-mortar retailer retain customers. The Confederation of All India Traders welcomed the move, saying it would bring clarity as ecommerce companies and multinationals were adopting all kind of tactics to control and dominate retail trade in India.

Smaller ecommerce companies
The smaller ecommerce companies which don’t have piles of money to compete with giants like Amazon will stand to gain from the new norms. Welcoming the new guidelines, Snapdeal founder and CEO Kunal Bahl said in a tweet: “Snapdeal welcomes updates to FDI policy on e-commerce. Marketplaces are meant for genuine, independent sellers, many of whom are MSMEs. These changes will enable a level playing field for all sellers, helping them leverage the reach of e-commerce.”
Another smaller ecommerce player ShopClues too welcomed the new guidelines. “It (introduction of the 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,” ShopClues CEO and co-founder Sanjay Sethi said. Instamojo CEO and co-founder Sampad Swain said while the earlier regulations were bound by high caps, MSMEs of the country would now get a fair opportunity to come and participate in the digital economy.

Small sellers
Smaller sellers on online platforms, which have been contesting the preferential treatment meted out by Flipkart and Amazon to their entities, have reason to cheer. Any service on an ecommerce platform – logistics, warehousing or easy financing options – will now have to be offered to all sellers and not to only preferred sellers. Ecommerce companies cannot charge additional prices from third-party sellers for these services. Even for private labels, etailers may not be able to advertise or promote their own brands while charging third-party sellers for pushing them.