Why Government May Ban Related Party Sales Of E-commerce, Food Delivery Startups "E-commerce companies are permitted to merely operate a pure-play marketplace i.e. a bridge between the buyer and seller and not sell any goods, even their own products on their platforms," said Praveen Khandelwal, secretary general, CAlT
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The Indian government may prohibit 'related party' or 'associated enterprises' of internet marketplaces to sell products or services to registered merchants on their platforms.
"Currently, the Consumer Affairs Ministry is leading the discussions on the matter. An inter-ministerial discussion with the Department for Promotion of Industry and Internal Trade (DPIIT) and The Ministry of Electronics and Information Technology (MeitY) was also held," said an ET report.
This means, if these rules are enforced, e-commerce companies like Flipkart and Amazon India and food delivery firms would not be allowed to offer ancillary products and services such as in-house logistics or payment products to merchants.
Some examples include Amazon Transportation Services, Flipkart's Ekart and food delivery companies offering delivery fleet to restaurant partners.
Sharing with Entrepreneur India the reasons behind the government considering this, Praveen Khandelwal, Secretary General, Confederation of All India Traders said, "As per the FDI Policy, e-commerce companies are permitted to merely operate a pure-play marketplace i.e. a bridge between the buyer and seller and not selling any goods even their own products on their platform. However, these companies not only indulges in control over inventory through its related party sellers but also create a complex web of preferred sellers and service providers to whom it gives preferential treatment in the form of low/zero commission charges and platform fee, faster one-day delivery, best payment discounts and prominent visibility on the marketplace amongst others. These companies play dirty game through their related parties."
The CAIT had raised this issue two years back and demanded a complete ban on related parties selling products or providing services. "We welcome this move of the Government as it will remove disparities and anomalies and create an even level playing field for all," he added.
The government has been keen on tightening the noose around regulation of e-commerce platforms. Last year, a framework was released to curb deceptive and fake reviews on e-commerce platforms. The draft e-commerce rules released in 2021 also mentioned that e-commerce companies should ensure that none of their related parties and associated enterprises are listed as sellers on their shopping websites. It also said that no related entity should sell goods to an online seller operating on the same platform.
Flipkart and Amazon reportedly serve the majority of their orders through Ekart and Amazon Transportation Services and this, if implemented, may come as a big blow.