3 Major Government Blows to Online Marketplaces on Boxing Day

With an aim to provide clarity to FDI policy on ecommerce sector, Department of Industrial Policy & Promotion issued a press note that states restrictive provisions that will come into effect from February 1, 2019.

The highlight of the press note are the three major hits that government has taken towards the ecommerce sector. These provisions put a blanket ban on private labels, exclusive deals and deep discounts offered by the online marketplaces.

In the first ruling, the government has made it clear that marketplaces can’t compel a seller to offer its products exclusively on their platform. In short, say goodbye to all those crazy Wednesday and Weekend sales you waited to crack every week. The second major provision clamps down the deep discounts e-commerce platforms offered during sales to attract modern day consumer.

Last but not the least, the third provision is a big blow to all those marketplaces that has developed an array of their own private labels. From Amazon’s Basics to Flipkart’s Billion, every private label will get impacted by this ruling which apparently will provide an equal chance to all sellers on the ecommerce platforms.

The private label market in India accounts for 6% business for the ecommerce companies. They help them to fill the price gaps and create greater margin of profit. While, some companies are still evaluating the impact of these provisions, others are welcoming them as they are in interest of independent sellers, many of whom are MSMEs.

This news comes in a time when the markets were just recovering from the impacts of demonetization and GST. Many economist are criticizing it for being regressive in nature while others are supporting it in favour of independent sellers.

In our opinion, these restrictions are again underscoring the ruling government’s emphasis on allowing FDI purely in genuine marketplace models. Any mix of marketplace & inventory-based model is struck down severely.