An employee scans the bar code of a package at the Inc. fulfillment center in Hyderabad, India. (Photographer: Dhiraj Singh/Bloomberg)

Online Retailers Can’t Sell Products Of Entities In Which They Own Stake

Tightening norms for online retailers like Flipkart and Amazon, the government on Wednesday took a host of steps and barred them from selling products of companies in which they have a stake.

“An entity having equity participation by e-commerce marketplace entity or its group companies, or having control on its inventory by e-commerce marketplace entity or its group companies, will not be permitted to sell its products on the platform run by such marketplace entity,” according to a statement by the Commerce and Industry Ministry. It also prohibited e-commerce companies from entering into an agreement for exclusive sale of products.

Besides, the revised policy on foreign direct investment in online retail firms said that services should be provided by e-commerce marketplace entity or other firms in which e-retail company has a direct or indirect equity participation or common control to vendors on the platform at arms length and in a fair and non-discriminatory manner.

"Cashback provided by the group companies of marketplace entity to buyers shall be fair and non-discriminatory," the ministry's notification said.

It further said that these companies will have to file a certificate along with a report of statutory auditor to the Reserve Bank of India, confirming compliance of guidelines by Sept. 30 of every year for the preceding fiscal.

These changes will come into effect from Feb.1 this year. The decision comes in the backdrop of several complaints lodged by domestic traders on heavy discounts being offered by e-commerce players to consumers.

As per the current policy, 100 percent FDI is permitted in marketplace e-commerce activities but it is prohibited in inventory-based activities.