NEW DELHI: In a major jolt to Walmart’s $16-billion acquisition of Flipkart and Amazon’s $5-billion bet on India, the government announced changes to the foreign direct investment policy for the ecommerce sector that could trigger a shakeup in the way leading platforms such as Amazon and Flipkart conduct business in the country. The move should mollify brick-and-mortar retailers, which have had a longstanding grievance against ecommerce sites for offering discounts to win over customers.A new rule inserted in the policy bars any entity related to ecommerce platforms from selling on that site and imposes a limit on how much one vendor can sell on a particular portal. The policy also prohibits ecommerce platforms from giving any preferential treatment to any supplier.Cashbacks, exclusive sales, brand launches, preferential services or programmes such as Amazon Prime and Flipkart Plus could run into difficulties under the new dispensation that seeks to ensure that these platforms are truly impartial marketplaces. Entities such as Cloudtail, in which Amazon has a stake, will likely not be able to sell on the platform. Flipkart’s new owner Walmart may itself not be able to sell on the website.“This has been done for better enforcement of the policy as enunciated by the Press Note 3 of 2016,” a senior government official told ET. “The PN 3 of 2016 had made it clear that ecommerce policy could not directly or indirectly influence prices, but there had been multiple complaints against these platforms violating these norms to offer discounts through their group entities in logistics and wholesale.”While Amazon and Flipkart didn’t respond to queries, one executive said on condition of anonymity that the measures would hurt the ecommerce companies.“It looks like someone has studied the business models of Amazon and Flipkart, and introduced clauses to systematically kill the two companies, especially at a time when ecommerce companies are providing jobs and investing in an ecosystem in India,” said a senior ecommerce industry executive, seeking anonymity.The new framework will come into force on February 1, 2019, said the Press Note issued by the Department of Industrial Policy and Promotion detailing the changes on Wednesday. The government is also working on a separate ecommerce policy for which inter-ministerial consultations have started.Brick-and-mortar businesses are set to be big gainers from the changes.Traders have complained that ecommerce entities were distorting the market by sourcing and selling goods on their own platforms, violating the policy that disallows foreign direct investment in business-to-consumer (B2C) ecommerce. It allows 100% FDI in businessto-business (B2B) ecommerce.“An entity having equity participation by ecommerce marketplace entity or its group companies, or having control on its inventory by ecommerce marketplace entity or its group companies, will not be permitted to sell its products on the platform run by such marketplace entity,” said one of the new clauses.This effectively prohibits any entity related directly or indirectly from selling on a platform.“With the new norms, Cloudtail can’t sell on Amazon. It can’t be given favourable terms for warehousing or logistics,” said an expert on investment issues, requesting anonymity. Amazon India’s largest seller, Cloudtail, is a joint venture between NR Narayana Murthy’s Catamaran Ventures and Amazon. Another addition to the policy tightens inventory-based provisions.“Inventory of a vendor will be deemed to be controlled by ecommerce marketplace entity if more than 25% of purchases of such vendor are from the marketplace entity or its group companies,” it said.This will prevent any brand or supplier aligning exclusively with one marketplace, as is usually the case with mobiles or white goods.The third major change in the policy said that ecommerce marketplaces or entities in which they have direct or indirect equity participation or shared control have to provide services to vendors on the platform at arm’s length and in a fair and non-discriminatory manner. This could put to an end selective promotional schemes such as cashbacks or faster delivery, which will be deemed unfair and discriminatory under the new policy.“Such services will include but not (be) limited to fulfilment, logistics, warehousing, advertisement/marketing, payments, financing, etc. Cashback provided by group companies of marketplace entity to buyers shall be fair and non-discriminatory,” it said.“If there is a logistics company within the parent company, it cannot operate free of cost,” said an expert. “It will have to be treated in the same way as others.”Akash Gupt, partner at PwC, said the changes appear aimed at creating a level playing field among vendors and broadbasing of vendors in a marketplace, on the lines of Alibaba and eBay.“Some of the changes are prescriptive and can be difficult to monitor, especially for small and mid-size ecommerce players,” Gupt said.Snapdeal CEO Kunal Bahl welcomed the move. “The update to the FDI policy on ecommerce will ensure balanced growth of India’s ecommerce industry, creating lasting gains for both sellers and buyers. FDI in marketplaces is meant to enable growth of India’s MSMEs (micro, small and medium enterprises) and these changes will help create a level playing field for all sellers.”The Confederation of All India Traders (CAIT) also welcomed the move, saying it would bring clarity as ecommerce companies and multinationals were “adopting all kind of tactics to control and dominate retail trade in India”, said CAIT secretary general Praveen Khandelwal.“If it is implemented in proper spirit, malpractices and predatory pricing policy and deep discounting of ecommerce players will be a thing of the past,” he said. An ecommerce policy is needed as is a regulatory authority to monitor the sector, he said. The policy should be implemented with retrospective effect from April 1, 2018, he said.