New e-commerce policy may allow only third party items on e-marketplaces

The Department for Promotion of Industry and Internal Trade (DPIIT) has informed the Parliamentary Standing Committee on Commerce that the conflict of interest that arises because of control of vendors’ inventory by e-marketplace entities would be addressed in the upcoming e-commerce policy. Under the new policy, there will be a clear distinction between the marketplace model and the inventory-based model.

The proposed policy seeks to ensure that e-commerce marketplaces sell only third-party products on their platform.

In an inventory model, an e-commerce company owns the goods or services and sells them directly to consumers; in a marketplace model, the e-commerce marketplace offers a digital platform to facilitate transactions between buyers and sellers.

To address various competition-related issues -- such as deep discounting, lack of platform neutrality, misuse of data by platforms, and non-transparent search ranking -- concerning e-commerce marketplaces, the committee suggested that there must be ‘clear definitions’ for these two models.

It suggested that an e-commerce marketplace should not sell any of its own goods and that sellers on the platform should only be third-party sellers.

In the case of the inventory model, the inventory of goods or services can be owned and directly sold to the consumer on a principal-to-principal basis. “The e-commerce entity should be the only seller on such an e-commerce store platform and there should not be any third-party seller on such e-commerce store platform,” the standing committee said in its report titled ‘Promotion and Regulation of E-Commerce in India’ tabled in the Rajya Sabha.

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• Competition-related issues, such as deep discounting, lack of platform neutrality, misuse of data by platforms, and non-transparent search ranking, have been plaguing e-commerce marketplaces
• Inventory model: E-tailer owns goods or services and sells them directly to consumers
• Marketplace model: E-tailer offers a digital platform to facilitate transactions between buyers and sellers

The House panel suggested that marketplaces should not be allowed to have any direct or indirect relationship with entities acting as sellers on their platform. This shall ensure that marketplaces do not indulge in inventory-based models.

For the past few years, domestic traders' bodies, such as Confederation of All India Traders (CAIT), have been urging the government to take action against e-commerce behemoths, such as Amazon and Flipkart, alleging that they have been flouting the law by offering deep discounts and promoting certain sellers, among others.

Also, there have been complaints that platforms indirectly control select preferred sellers and give them preferential treatment.

The House committee also suggested that an e-commerce entity, operating under both marketplace and inventory models, use separate branding for each of the platforms. “An e-commerce entity, operating under the marketplace model, must be prohibited from directly or indirectly licensing its brand or private label products to third parties selling products on its platform. The restriction should be extended to the marketplace entity’s associated enterprises or its related parties,” it said.

Marketplaces should also fully disclose the terms and conditions of the agreement required to become a seller, the panel said, adding that any unilateral revision of these terms and conditions that may negatively impact concerned stakeholders should be prohibited.