With the boom in Internet usage and Social Media, the society is changing its way of shopping for its basic necessities such as food, water, clothes etc. The technology driven people now take recourse to their electronic devices to purchase any commodity and fulfill all of their needs. Due to such technology dependency of the people, more and more companies are entering into the retail industry by way of e-commerce. The Retail Industry in India has been one of the most regulated sectors and there has been an uprise in foreign investment by companies like Walmart, Amazon, Alibaba for online retailing.
At present, the Foreign Direct Investment Policy, 2017 permits foreign investment of 100% by way of automatic route in E-commerce marketplace model, though, recently on 26th December, 2018, the Department of Industrial Policy and Promotion (DIPP) under the Ministry of Commerce, Government of India introduced certain changes termed as clarifications to the 2017 policy. The changes are likely to affect the e-commerce space which is presently dominated by Walmart and Amazon who control more 75% of the online retail market. The Key changes which are being brought under the Policy are as follows:-
An entity providing ecommerce marketplace (“Marketplace Entity”) shall not exercise ownership or control over the inventory which it intends to sell
A vendor shall not be permitted to sell on the marketplace owned by the Marketplace Entity if such Marketplace Entity or its group companies own any stake in the vendor or exercises control over the inventory of such vendor.
Marketplace Entity will not influence directly or indirectly sale price of goods or services sold over the marketplace by the vendors and shall maintain level playing field for all vendors.
A Marketplace Entity will not mandate any seller to sell any product exclusively on its platform only.
An ecommerce marketplace entity will be required to furnish a certificate along with a report ofa statutory auditor to Reserve Bank of India, confirming compliance of above guidelines, by 30th of September of every year for the preceding financial year.
The changes being brought in the E-commerce sector is likely to affect the major E-Commerce players such as Flipkart, Amazon, Myntra, Jabong, etc. The customers of such websites are given benefit in terms of pricing, delivery, etc. By virtue of the changes being brought in the Policy, the market players will be prevented to sell products or endorse the products of such companies, in which they are holding a stake. The companies will not be able to insist on exclusive tie-ups with brand owners owing to their dominant position in the market. Companies such as Myntra which have invested in companies, whose products they are endorsing on their own website shall be halted, one such being HRX, a clothing brand of famous actor Hrithik Roshan in which Myntra is an investor, products will not be henceforth sold on their website.
With the change, all the marketplace companies shall bear the onus of reporting their compliance annually to the Reserve Bank of India.
The change is said to be beneficial to small and medium retail players, who have had to face strong competition in the market due to indiscriminate discounting by the dominant players. The Indian retail companies such as Future Retail shall also be benefited from such changes as they will also be able to provide discounts while simultaneously providing delivery services.
However, there remain some discrepancies in the changes being introduced, which appears shall be brought to light in the course of time. The affect being brought though shall benefit the small market players but will also affect the Retail Industries dominant market players. Such major steps at the brim of election can be a knock out of the park or a failed attempt to revolutionize the retail industry.
Senior Legal Associate
The Indian Lawyer