India plans tighter e-commerce rules amid complaints over Amazon, Flipkart

India proposed banning flash sales on e-commerce websites and said their affiliate entities shouldn't be listed as sellers on their platforms, in a proposed tightening that could hit Amazon, Flipkart

By Aditya Kalra

NEW DELHI (Reuters) -India proposed banning flash sales on e-commerce websites and said on Monday their affiliate entities should not be listed as sellers on their platforms, in a proposed tightening of rules that could hit Amazon and Walmart's Flipkart.

The Ministry of Consumer Affairs' rules, which were released in a government statement, come amid complaints by brick-and-mortar retailers that foreign e-commerce players bypass Indian laws by using complex business structures.

Amazon and Flipkart say they comply with all Indian laws. Amazon said on Monday it was reviewing the draft rules and had no immediate comment, while Walmart's Flipkart did not respond to a Reuters request for comment.

Under the stricter proposals, e-commerce companies should not hold flash sales in India. These are hugely popular during festive season, but have faced anger among offline sellers who say they cannot compete with the deep discounts online.

E-commerce firms must also ensure that none of their "related parties and associated enterprises" are listed as sellers on their shopping websites, and no related entity should sell goods to an online seller operating on the same platform.

The changes could impact business structures used by Flipkart and Amazon in the fast growing Indian e-commerce market, industry sources and lawyers said.

A Reuters investigation http://reut.rs/2OCOT2W in February showed Amazon had given preferential treatment to a small group of sellers for years. Amazon holds an indirect stake in two of the top sellers on its website, but says it does not give any preferential treatment.

Foreign e-commerce players must not make direct sales to consumers, and can only operate a marketplace for sellers.

Amazon and Flipkart are also regulated under India's foreign investment rules for e-commerce, and it was not clear if the proposed consumer ministry rules will supersede them or not.

The proposal, which is applicable to both Indian and foreign players, is open for public consultation until July 6, the Indian government statement said.

The rules also call on companies to make suggestions of alternative products before customers make purchases "to ensure a fair opportunity for domestic goods."

"This proposal basically changes the way e-commerce is structured. This is way beyond consumer rules - this is basically like an e-commerce industry policy," one e-commerce executive said, adding: "It will be extremely disruptive."

Amazon and Flipkart are separately locked in a court battle with federal antitrust watchdog to stall an investigation into their business practices.

(Reporting by Aditya Kalra in New Delhi;Editing by Alexander Smith)