India’s new rules on e-commerce restrict the way Amazon and Flipkart do business. They were operating hybrid marketplaces and at three levels to offer deep discounts and were booking the losses in their books.
In the first stage, Amazon and Flipkart would buy the products, directly from manufacturers in bulk and avail discounts. These products would then be sold on their B2B platforms to entities in which they had stakes at prices lower than they had bought them, thereby booking the losses on their own books.
The sellers would then offer these products on the respective e-commerce retail platforms. When the customer makes the purchase, there are delivery charge waivers etc. This is the second level where losses are absorbed, to sell the products cheaper.
In the third stage, there are cashback offers and other interest free monthly payment schemes to make the deals absolutely attractive. These payment firms are also run by Amazon (Amazon Pay) and Flipkart (PhonePe).
Foreign direct investment regulations for retail and e-commerce businesses are specific and investors cannot mix the two to skirt investment norms. Rules for e-commerce were tightened since the majors tried to circumvent rules by designing a hybrid marketplace to skirt FDI rules.