India proposes tougher e-commerce rules to address ‘widespread cheating’ complaints

India proposed on Monday banning flash sales on e-commerce platforms and preventing their affiliate entities from being listed as sellers as the South Asian market looks to further tighten rules that could hurt the future prospects of Amazon and Walmart's Flipkart in the world's second-largest market.

The proposal (PDF), unveiled by India's Ministry of Consumer Affairs on Monday evening, comes at a time when brick-and-mortar retailers in India have ramped up their complaints to raise concerns about what they allege as unfair practices employed by Amazon and Flipkart as they expand their operations in the country.

In its proposal, India's Ministry of Consumer Affairs said that e-commerce firms should not be allowed to hold flash sales in India. These flash sales, akin to Black Friday and Cyber Monday sales in the U.S., are very popular during festive season in the country. During flash sales e-commerce firms have traditionally observed the biggest spikes in customer orders as brands offer heavy discounts on their products.

Certain e-commerce entities are engaging in limiting consumer choice by indulging in back to back' or flash' sales wherein one seller selling on platform does not carry any inventory or order fulfilment capability but merely places a flash or back to back' order with another seller controlled by platform. This prevents a level playing field and ultimately limits customer choice and increases prices," the ministry said in a statement.

As it has done with its recent IT rules, India is also proposing that e-commerce firms appoint a chief compliance officer, a nodal contact person for 24*7 coordination with law enforcement agencies, and officers to ensure compliance to their orders as well as a resident grievance officer for redressing of the grievances of the consumers on the e-commerce platform.

This would ensure effective compliance with the provisions of the Act and Rules and also strengthen the grievance redressal mechanism on e-commerce entities," the ministry said, adding that the new proposal also asks every e-commerce entity to provide government agencies with information within 72 hours for the purposes of verification of identity, or for the prevention, detection, investigation, or prosecution, of offences under any law for the time being in force, or for cyber security incidents."

The new proposal may also prohibit Amazon, Flipkart and other e-commerce players from running their in-house / private labels. The new proposal asks e-commerce firms to ensure that none of their related and associated parties are listed on their platforms as sellers for selling to customers directly. Ensure that nothing is done by related parties or associated enterprises which the e-commerce entity cannot do itself," the proposal said.

India does not allow e-commerce firms to hold inventory or sell items directly to consumers. To bypass this, firms have operated through a maze of joint ventures with local companies that operate as inventory-holding firms.

Amazon, which has invested over $6.5 billion in its India business, said it was reviewing the proposed policies while Flipkart, whose majority stake Walmart bought for $16 billion in 2018, had no immediate comment.

In a court hearing on Monday, a Flipkart lawyer said the company sees nothing wrong in offering to cut charges for sellers on its platform if they lower product prices.

The ministry said it is making the proposal, for which it plans to seek industry feedback over the next 15 days, after receiving several complaints against widespread cheating and unfair trade practices being observed in e-commerce ecosystem."

Additionally, the new proposal asks e-commerce firms to introduce a mechanism to identify goods on their platforms based on their country of origin and suggest alternatives to ensure fair opportunity to domestic goods."

The announcement comes at a time when Flipkart is in talks to raise as much as $3 billion and explore the public markets. Both Amazon and Flipkart are also the subject of an ongoing antitrust probe in India.

This is the second major amendment the Indian government has proposed in recent years. In 2018, too, New Delhi had proposed tougher rules for e-commerce firms that, when enforced in early 2019, left Amazon and Flipkart scrambling to delist hundreds of thousands of items from their stores and made their investments in affiliated firms way more indirect.

Today's proposal comes months after Reuters, citing company documents, reported that Amazon had given preferential treatment to a small group of sellers in India, publicly misrepresented its ties with those sellers and used them to circumvent foreign investment rules in the country.

At the time, the Confederation of All India Traders, an influential India trader group that represents tens of millions of brick-and-mortar retailers, had called on New Delhi to ban Amazon in the country. Around the same time, India's commerce ministry had said it was reviewing the matter.

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