As per the new e-commerce policies set by the government of India, a ban will be applied to companies like Amazon and Flipkart from selling products from companies in which they have an equity share. The government statement also said the policy will prevent companies from entering into exclusive agreements with the sellers. These new rules will be applicable from the 1st of February.

The Statement

“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,” the commerce ministry said in a statement.

The Result

The companies can now make bulk purchases from wholesale units and in turn, sell the products to select sellers or other companies which they have agreements with. These sellers can then sell products to direct consumers and other companies and that too at quite a low price.

The Reason

These new rules are a result of complaints from Indian retailers and traders, who say the giant e-commerce companies are using their control over inventory from their affiliates, and through exclusive sales agreements, to create an unfair marketplace that allows them to sell some products at very low prices.

The All India Online Vendors Association (AIOVA) in October filed a petition with the anti-trust body Competition Commission of India (CCI) alleging that Amazon favors merchants that it partly owns, such as Cloudtail and Appario. The lobby group filed a similar petition against Flipkart in May, alleging a violation of competition rules through preferential treatment for select sellers.

Wednesday’s notification also said that the cash back that customers get as an incentive while online shopping should not be based on whether the product was purchased from an affiliate of the platform or not.

The new rules said that services provided to vendors on an e-commerce platform and by that entity’s affiliates should be done so at arm’s length and in a fair and non-discriminatory manner.

The Effect

New rules will appease small traders and farmers who fear that U.S. companies are making a backdoor entry into India’s retail market and could squeeze out small corner shops that dominate Indian retailing.