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New FDI rules hitting e-com giants hard

E-Commerce giants Flipkart and Amazon are witnessing downward spiral in their sale figures after the new FDI rules kicked in a few days back, Economic Times (ET) claims after citing unknown sources.

Sources cited by the ET have claimed that the effect of the new FDI rules is proving to be more adversarial than GST – largest tax reform introduced by the Indian government in June 2017.

Flipkart and Amazon’s sales witnessed a sharp drop of as much as 25%-35% since the new FDI rules came into effect since last week’s Friday.

Flipkart and Amazon may not offer Deep Discounts from this year

Both online marketplace platforms have stopped offering deep discounts on electronic appliances and smartphones, which forms the bulk of their GMV and sales revenue. Electronic appliances and smartphones owing to their high-profit margins contribute significantly to the online marketplace’s sales revenue.

Industry trackers have also claimed that online marketplaces have stopped offering discounts on bulk goods.

So what are these new FDI Rules all about      

Industry experts claim that the new FDI rules were mainly framed to remove the controversial loopholes from the e-commerce industry as big players like Amazon and Flipkart openly flouted them to their advantage.

As per the several new rules, foreign-funded e-commerce companies cannot allow their subsidiary companies to sell their products on their platforms. Furthermore, if online retailers make more than 25% of purchases from a single seller then their business will be considered as an inventory business model.     

Online retailers are also barred from forging exclusive deals with companies. Therefore, the days of Xiaomi and Mi phones exclusive sales on Flipkart and Amazon have pretty much become a thing of past.

As a result of these new rules, Amazon and Flipkart will have to be far more impartial in their approach towards sellers.

The controversy over e-commerce platform’s preferential treatment to large and in-house companies was brewing for several months after many groups representing small traders had complained to the Competition Commission of India.

The offline retailers had also approached the Indian government as they feared the onslaught of steep discounts offered by the online players.

Will the E-commerce Party Come to End Now   

The new tough online rules have understandably put forth the valid question about whether the e-commerce party of steep discounts and cash backs has finally come to an end.

Several e-commerce experts believe that it sure looks like an end of the road as far as online discounts are concerned until the government makes amends in the new rules to allow Amazon and Flipkart to resort back to their discounting strategies.

Analysts argue that these new rules will open a new chapter In India’s e-commerce industry, claiming that these e-tailers will stop being over-dependent on discounting strategy and start building a business model that is more profit-centric.

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