New e-commerce rules may be prone to manipulation, work-arounds: Experts

New e-commerce rules may be prone to manipulation, work-arounds: Experts

New Delhi, Dec 27: The fresh attempt at regulating the e-commerce sector in India, whilst well-intended, leaves scope for work-arounds and potential manipulation, experts and industry observers say. The new rules are mildly-worded and majors players, like the previous instances, may be able to get around them with only minor tweaks to their business models and subsidiary ownerships structures. The legal teams are already at work.
The biggest (high-impact) change is the clause that debars a seller that has ownership by the e-commerce marketplace, or any of its “group companies”, from selling on the said e-store. This puts ventures like Cloudtail and WS Retail, affiliates of Amazon and Flipkart respectively, in jeopardy.
However, the details are of significant value here.
The rules say the said seller must not have “equity participation by e-commerce marketplace entity or its group companies”, but does not define ‘group companies’. Cloudtail is a joint venture between Amazon.com Inc. and Narayan Murthy’s family office Catamaran Ventures. It could be argued that Amazon India Pvt Ltd, which operates Amazon.in, is not directly linked to Amazon.com, the US firm. Regulatory filings show the ownership of Amazon India by a web of holding companies, outside the US and India, which, at top end of the structure are owned by Amazon.com Inc.
In any case, if Amazon.com Inc forgoes its stake in Cloudtail, it will still be excruciatingly difficult to audit whether Amazon continues to exert influence on the business or not.
A similar regulatory complication exists in the business-to-business (B2B) wholesale operations of e-commerce firms. New rules say that in the case of an online seller procuring over 25% goods from the e-commerce firm’s wholesale arm and selling on the same e-store, the e-commerce firm will be deemed as working on an inventory model, (which is not allowed) and forced to roll back.
Again, Amazon’s B2B firm, Amazon Wholesale (India) Pvt. Ltd, is owned by Amazon.com Inc, and it’s likely to be argued that Amazon.com and Amazon.in, the Indian e-commerce site, are technically two different entities.
The new rules again fall short of a well-rounded policy, said Arvind Singhal, the founder of Technopak, a consultancy for consumer products and retail sector.