As e-commerce regulations are tightened, the fight between foreign companies Amazon, Flipkart, and Indian companies Reliance, Tata Group is set to intensify.
Foreign brokerage, Jefferies said in a note, "The proposed rules now target indirect ownership in vendors, own label, flash sales. Fight between foreign companies (Amazon, Flipkart) and Indian companies (Reliance, Tata Group) is set to intensify."
India's e-commerce industry faces complex regulations, the note said. While B2B and single-brand retail have a stable framework, FDI in inventory-led e-comm. is prohibited. 100 percent FDI is allowed in the marketplace but regulations are evolving - 2018 rules pushed Amazon to reduce stake in a key seller.
In July 2020, new regulations were enacted with the intent to protect customer interest. However, in 2021, there have been amendments to those rules, still at a draft stage and open to public comments until 6-July - these are applicable to both Indian and foreign-backed platforms, but seem more relevant for Amazon and Flipkart, based on our reading, Jefferies said.
Increase in the scope of related parties to now includes a common chain of directors, more than 10 percent common ultimate shareholders, 5 percent shareholding in related entities, etc.
Related party, as defined above, cannot become a seller on the platform and also cannot do anything that the e-commerce entity itself cannot do.
The marketplace cannot sell goods or services to any vendor on its platform. "Marketplace name or brand cannot be used for the product - 'Amazon' Alexa for example, in our view; Marketplace subject to fallback when the vendor fails to perform; flash sale favoring certain vendors only is not allowed, etc", the note said.
Amazon started in 2013 as a marketplace but faced issues on FDI. In 2014, Amazon entered into a partnership with Catamaran Mgmt. Services (promoted by Infosys co-founder Narayana Murthy), which owned 51 percent while Amazon owned 49 percent in Prione Business which owned Cloudtail India, the key vendor on the Amazon India platform. However, the 2018 regulation pushed Amazon to reduce its stake to 24 percent with Catamaran now at 74 percent.