Analysis | Will government stick to its surgical strike on e-tailers or is there some room for amendments? 

It has also further tightened the norms under which discounts are offered to online customers, stressing upon the need for a level-playing field.

The rules seem to be a death knell for e-commerce companies. These are the companies that were circumventing Press Note 3 by means of tie ups or stakes in third party entities. However, the government has also given them a comfortable time frame of complying with the rules by February instead of implementing it with immediate effect.

The icing on the cake is the deadline of September 30 by when the e-commerce marketplaces will be needed to furnish a certificate along with a report of statutory auditor to Reserve Bank of India, confirming compliance of above guidelines. So, they have about nine months to figure out ways in which they can come up with ways to deal with this new set of rules.

In 2016, the Press Note 3 was implemented with immediate effect. However, it seems the government does not want to ruffle the feathers of e-commerce entities, especially when global retail giants such as Walmart have entered the Indian market.

The second important aspect is will the government ever be able to achieve its ambitious targets without having a regulator for the sector. Unlike sectors such as telecom or banking, e-commerce which is at a nascent stage doesn't have a regulator. While traders have been demanding for a watchdog, leading e-commerce companies are saying the the need for the hour is to be self regulated.

It is crucial to note that, in 2016 the government had barred e-commerce companies from generating more than 25 percent of their sales from a single vendor. To cirmcumvent this, the companies had prepared a list of preferred vendors through which they were doing over 90 percent of their business. The rest of the business was coming from standalone vendors on their sites.

The earlier rule also said that any warranty or guarantee offered to the customers will be the sole responsibility of the sellers and the marketplaces will not directly or indirectly influence the pricing of the goods.

However e-tailers had set up third party units with 100% or lesser stakes in them to offer warranty and guaranty, thereby flouting the norms.

Under Press Note 2, the government has now said that cashbacks provided by group companies of marketplace entity to buyers shall be "fair and non-discriminatory". It has also stated that for the purposes of this clause, provision of services to any vendor on such terms which are not made available to other vendors in similar circumstances will be deemed unfair and discriminatory.

Now, while the government has not barred the group companies of e-tailers to help them offer cashbacks to customers, it has stressed that these companies will offer similar incentives to the vendors on their sites and will not have any preferential treatment. This is solely done to keep in mind the interest of small vendors who sell products through the marketplaces. When compared with the benefits offered to the preferred vendors, they are often laggards.

In what could also be seen as a masterstroke for the offline retailers, the government has hit companies such as Amazon and Flipkart on their knees by barring them from selling products of entities in which they own stakes. This in principle bars entities like Couldtail and Appario from selling their products on Amazon.in. Cloudtail is the joint venture of Amazon and Narayana Murthy's Catamaran Ventures and also one of its important vendors.

The online retailers are crying foul and are likely to reach out to the government for an amendment here. The $20 billion online commerce industry is a fraction of India’s $700 billion offline retail sector.

Interestingly, the government which is also working on an e-commerce policy, didn't have a specific round of consultation with any stakeholder of the sector, including the e-tailers and offline traders before announcing Press Note 2.

Cashbacks and predatory pricing offered under the umbrella of the heavy pocketed e-commerce companies have actually been killing the businesses of small vendors.

It is a brilliant stroke by the government to promote small and medium vendors but implementation will be the key.