Tuesday 5 April 2016

Government Defines Rules for E-Commerce Companies

The Indian government has established new rules for e-commerce enterprises in the country, with immediate effect. These rules bring relief to traditional retailers who have been unable to compete with the deep discounts and wide reach of e-commerce giants like US based Amazon and India based Flipkart.
In its press note released on March 29, the Department of Industrial Policy and Promotion (DIPP) defined the online marketplace as an “information technology platform on a digital and electronic network” that facilitates transactions between buyers and sellers.
New sourcing norms now state that a single vendor or group company cannot be responsible for more than 25 percent of total sales of the online firm or platform. A 100 percent foreign direct investment (FDI) is allowed in the online marketplace model, i.e. the business to business (B2B) segment but not in the inventory based model or firms that directly sell goods and services to consumers using online platforms, i.e. business to consumer (B2C) segment. While firms can offer support services to businesses selling on their platform (warehousing, logistics, order processing, call center support, and payment collection), they are prohibited from making pricing interventions such as offering direct discounts, cash-back schemes, or “promotional funding” by indirectly funding the discounts provided by sellers.
The regulatory development comes at a time when online retail is expected to jump from two percent in 2014 to 11 percent in 2019. E-commerce firms have so far benefited immensely from massive foreign investments – previous regulatory ambiguity provided loopholes that seemed to conflate the inventory and marketplace models. The government’s move, therefore, levels the playing field between online and offline retailers. Existing and new online commerce platforms will need to restructure their businesses accordingly.

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