The rules come as U.S. firms battle allegations from traders for working around foreign investment regulations for the sector, and could further complicate the operating environment for Amazon and Flipkart even as the companies fight antitrust allegations in courts. The companies deny any wrongdoing.
India's e-commerce market is projected to grow 30% annually to $200 billion by 2026. It also counts Reliance Industries' JioMart, Tata's BigBasket, Softbank-backed Snapdeal and Future Retail among major players.
Here are some of the new proposals, which are open for public consultation until July 6:
AFFILIATES AS SELLERS
E-commerce companies must ensure none of their "related parties and associated enterprises" are listed as sellers on their shopping websites, and no related entity should sell goods to an online seller operating on the same platform.
The changes could impact business structures used by Flipkart and Amazon, sources and lawyers said. Amazon specifically holds indirect stakes in two of the top sellers on its website. A Reuters investigation https://www.reuters.com/investigates/special-report/amazon-india-operation in February showed Amazon helped a small number of sellers prosper online, giving them discounted fees and classifying some as "special merchants".
Some of Amazon's top sellers also used to buy goods through Amazon's wholesale unit in India before reselling them on the site, Reuters reported, a practice that may be affected.
FLASH SALES BAN
E-commerce companies should not hold flash sales - which see deep discounts on offer - if these are organised "fraudulently" using "technological means" with an intent to benefit select sellers, the rules say.
Indian traders say the U.S. firms work with select sellers to offer certain models of smartphones and other products during these promotions, an allegation that the companies deny.
Online sales are immensely popular on all websites, including Amazon, Flipkart and Reliance's JioMart.
Brands associated with the e-commerce entity will be barred from promotion or sale on its platform, the rules said.
This is seen hurting private labels, which are brands owned or licensed by companies like Amazon to certain sellers, that then market them on their online platforms.
Both Indian and foreign players have developed extensive private label offerings in recent years which help them boost their overall profitability.
Websites selling imported products should identify them on the basis of their so-called "country of origin". Further, they should add a filter mechanism and display notification to suggest "alternatives to ensure a fair opportunity for domestic goods".
MISLEADING ADS, LIABILITY
No e-commerce entity shall allow any display or promotion of "misleading advertisement" on its platform. They also must within 72 hours of receiving an order assist government agencies for investigative or cyber security-related activities.
The new rules also propose to increase liability of e-commerce firms, which could be held liable if a consumer suffers due to a seller's negligent conduct or failure to deliver goods.
Online websites should not mislead users by manipulating search results and provide ranking for goods while ensuring its parameters do not discriminate against domestic goods and sellers.
E-commerce companies will put in place a grievance redressal mechanism, including appointing a chief compliance officer. The government's mandate for such appointments, already in place for social media companies, is seen raising compliance requirements of e-commerce firms.
(Reporting by Abhirup Roy and Aditya Kalra; Editing by Emelia Sithole-Matarise)
By Abhirup Roy and Aditya Kalra