The new Indian e-commerce rules will raise costs for all online retailers but particularly Amazon and Walmart's Flipkart as they may have to review their business structures, senior industry sources told Reuters.
India's Ministry of Consumer Affairs outlined plans on Monday which include limiting "flash sales" by online retailers, reining in a private label push, compelling them to appoint compliance officers and impose a "fall-back liability" if a seller is negligent.
The new rules are expected to have an impact across the board in an e-retail market India forecasts will be worth $200 billion by 2026, with players including from Tata's BigBasket, Reliance Industries' JioMart and Softbank-backed Snapdeal to market leaders Amazon and Flipkart.
The rules are the latest in a growing confrontation between U.S. tech giants and New Delhi over a host of policy-related issues which are seen by some as protectionist.
"The rules will have a wider impact on all forms of e-commerce and will increase business costs. Entities, even beyond big players, are analysing the policy and will share concerns with the government," Arjun Sinha, a partner at Indian law firm AP & Partners, told Reuters.
The companies have until July 6 to respond to the proposals, after which time they may be reviewed further or implemented. Snapdeal said it was reviewing the rules. BigBasket declined to comment. Reliance did not respond to a request for comment.
One aspect of the proposed new rules which is likely to have a particular impact is one which gives the customer "suggestions of alternatives to ensure a fair opportunity for domestic goods" if a retailer is showing imported goods for sale.
"The concept is about promotion of local goods. It's good for Made-in-India products, but not for the platforms," said Salman Waris, a partner at TechLegis Advocates.
Non-compliance with the rules, if implemented, could be punishable with prison terms, and fines of at least 25,000 Indian rupees under the India's consumer law, Waris added.
Monday's Indian government notification detailing the rules said that they were being issued after complaints of "widespread cheating and unfair trade practices being observed in the e-commerce ecosystem." It did not name any company.
The rules potentially present a bigger setback for Flipkart and Amazon, as they contain clauses that say e-commerce firms must ensure none of their related enterprises are listed as sellers on their shopping websites, and that no affiliate entity should sell goods to an online seller operating on its platform.
Amazon holds an indirect stake in two of its top sellers. Indian retailers allege that Amazon and Flipkart use their wholesale units to indirectly list products on their websites through select sellers, bypassing foreign investment restrictions that prohibit direct sales.
Both companies deny any wrongdoing. Amazon and Flipkart are likely to push back against the proposals, two of the industry sources said.
The rules were seen by some in the industry as a government alternative to a more stringent version of its foreign investment law, which restricts business arrangements Flipkart or Amazon can have with sellers, the sources said.
"The Consumer Affairs ministry has nothing to do with issues brought under these rules," one e-commerce executive said.
Amazon said in a statement that online marketplaces promote competition and enable transparency, adding that it was reviewing the draft policy and it was too early to comment. Flipkart did not respond to a request for comment.
A Reuters investigation in February cited Amazon documents that showed it gave preferential treatment to a small number of its sellers and used them to bypass federal law, sparking calls for a ban against the company. Amazon has said it does not give favourable treatment to any seller.