Indian govt delivers Amazon, Flipkart a rude shock with new e-comm rule

India was perceived as a fertile ground for e-commerce growth by both Amazon (AMZN) and Walmart-owned local rival Flipkart, both of which had made heavy investments in the country. But the government on Thursday announced a new set of rules that could put these companies in a dilemma.

The latest notification by the Commerce Department bars e-commerce companies from selling to firms where they have a stake. This comes as a spoiler to e-commerce majors who had been using B2B firms as intermediaries to sell products at a discounted rate.

It may be noted that the Indian government does not allow foreign companies to sell directly on the e-commerce platforms.

The latest notification also bans online shopping sites from “forcing” exclusive deals with sellers, though sellers may choose to distribute their products through a specific platform alone. This, in turn, leads to the end of an era of flash sales, which had been a profitable marketing strategy for many online shops.

Cashback offers will also become a difficult proposition in terms of wallet services and logistics, given they need to be uniform among all vendors. Analysts feel that these new rules, to be made effective from February 1, will decimate the business models built by e-commerce companies over the past five years.

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The move has been spurred by an outcry by brick-and-mortar stores, who had been accusing online shopping platforms of offering cut-throat discounts.

The smaller e-commerce companies, which had been disputing the preferential treatment that was offered to bigger rivals, have something to cheer about. Snapdeal, a small player that competes with Flipkart and Amazon, welcomed the move saying it created a level playing field in the e-commerce industry.

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