New e-commerce rules that are designed to protect domestic Indian companies could end up punishing consumers, industry observers say.

Currently, foreign companies – in particular the likes of Amazon and Walmart’s Flipkart – are prevented from selling anything other than groceries directly to consumers online. Foreign investors get around the rules by teaming up with domestic platforms, which means all products listed on Amazon, for example, are advertised as being sold by an independent seller.

The new rules, which take effect from the start of next month, are aimed at closing the loophole, banning any foreign investor with a stake in a platform from selling their goods, and could spell the end of deep discounting and cashbacks for shoppers, the Economic Times reported.

The government says the tighter rules are designed to create fair trade and prevent foreign companies from having undue influence over domestic prices. Critics point out that in practice they will mean the end of discounting and a slowdown in growth of the online commerce sector.

E-commerce giants like Amazon, for example, could potentially be banned from offering proprietary goods, like the Echo smart speaker, at big discounts.

“Cashback and deep discounting are the two biggest attractions for consumers shopping on e-commerce,” Mayank Shah, category head of Parle Products, India’s second-largest biscuits maker, told the Times. “With that likely to be compromised from February 1, growth will be impacted.

“Even if companies like Amazon or BigBasket start offering alternatives to cashback – for example, movie ticket vouchers or flight booking discounts – it constrains consumers and doesn’t have the same draw as a flat cashback in consumers’ wallet,” he said.

And retail analyst for Bloomberg Jennifer Bartashus told The National: “Prices will go up as discounts evaporate, and product options and availability may contract as e-commerce marketplaces strive to remain compliant with the new rules.”

The rules will come as a blow to those foreign e-commerce giants, such as Amazon, Alibaba and Walmart, that have been trying to make commercial headway in the country.

The National reported that Amazon lost some $3bn on efforts to expand internationally in 2017, and analysts say most of that was in India.

In May last year, Walmart spent $16bn to buy the online retailer Flipkart. And China’s Alibaba has a stake in the country’s biggest online grocer, BigBasket, as well as an investment in the e-commerce and payment platform Paytm.

Sourced from Economic Times, The National; additional content by WARC staff