Amazon India is in discussions with the government on recently framed eCommerce rules and the company’s top executives have told senior officials that a clause allowing marketplaces to do their own promotions must be worked in if the sector has to grow.
Two people directly aware of the development, who spoke on condition of anonymity, told ET that Amazon India executives have expressed concern to officials of the Department of Industrial Policy & Promotion that the rules on marketplace do not provide enough clarity on whether an eCommerce firm can advertise sellers’ discounted products under the firm’s banner.
Since the new rules were announced on March 29, Amazon India has not advertised deals and discounts on its platforms.
Amazon India did not respond to ET’s questions.
The rules do not explicitly ban advertising by eCommerce firms that follow the marketplace model. But there’s a strong proscription against “directly or indirectly influencing the price of goods”.
“Anyone can accuse an eCommerce firm of indirectly influencing prices if that firm carries an ad on discounts offered by sellers and brands,” one of the persons said, pointing out that as an America-headquartered company, Amazon was seeking complete clarity on a regulatory issue. Amazon, listed on Nasdaq, faces high compliance standards on foreign investment related issues under US law.
According to the other person familiar with the Amazon-DIPP interactions, executives of the company asked the department several questions. The company has asked DIPP: “How do we grow in India? Whatever we do on our platform can be brought under the ambiguous definition of ‘indirectly influencing price’.”
Amazon executives also made a point on direct interface with customers. “If we are not allowed to interface with customers, then how will we acquire customers and do business?”
A senior DIPP official, familiar with these arguments, however told ET that the norms are well-defined and leave no room for interpretation. “Every player understands what the norms are now…If they are still caught on the wrong side of the law, they will have to pay the penalty,” he added.
The government has defined marketplace model of eCommerce as provider of information technology on a digital and electronic network to act as a facilitator between the buyer and the seller besides putting out clear definitions for eCommerce, eCommerce entity and inventory-based model. DIPP has put the inventory-based model as a B2C (business-to-consumer) activity where foreign direct investment is not permitted.
As per the latest guidelines, eCommerce companies are neither allowed to influence the price of goods and services directly or indirectly nor accrue more than 25% sales from a single vendor or from their group companies.
Not only are eCommerce firms barred from offering discounts under the new policy, they also cannot offer promotional schemes like cashbacks to lure shoppers. The warranty of goods and services and after-sales service too will be provided by sellers and not the eCommerce company.
The eCommerce industry in India is expected to grow from $17 billion in 2014 to $60-70 billion by 2019. Lack of clear definitions in the new rules has led to legal disputes between offline and online retailers. Brick-and-mortar retailers have said eCommerce companies are “circumventing” FDI laws by infusing overseas capital into retail, which India does not allow.