Indian Government Tightens Guidelines For FDI In eCommerce; End of Deep Discounts?

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Source: Gizbot

The government on Wednesday tightened guidelines for FDI in e-commerce, barring players, including Amazon and Flipkart, from selling exclusive-only products on their platforms, a move aimed at curbing the alleged practice of influencing prices.

Source: BGR India

The revised policy unveiled by the Department of Industrial Policy and Promotion (DIPP) on Wednesday also puts curbs on these players from selling products of companies where they have a stake.

The changes in the policy have come against the backdrop of several domestic sellers complaining about deep discounting and alleged discrimination by e-commerce giants. Small traders have also been complaining about the influence of large e-commerce giants with deep pockets on their businesses and livelihoods. The government had received complaints that e-commerce players with foreign investments were allegedly flouting existing FDI norms.

“An entity having equity participation by e-commerce marketplace entity or its group companies, or having control on its inventory by e-commerce marketplace entity or its group companies, will not be permitted to sell its products on the platform run by such marketplace entity,” the revised policy said.

Reactions from players and executives related to the e-tailers

Several senior executives in large e-commerce companies termed the changes as regressive. “These random changes do not give the investor community confidence in the regulatory framework,” said a senior executive at an e-commerce firm. “With respect to exclusive-only deals, small and medium sellers we work with may lose the advantages of such deals, such as technical knowhow and knowledge of modern trade practices.”

An Amazon spokesperson said, “We are evaluating the circular.”

Domestic players, however, cheered the changes. “Snapdeal welcomes updates to FDI policy on e-commerce. Marketplaces are meant for genuine, independent sellers, many of whom are MSMEs. These changes will enable a level playing field for all sellers, helping them leverage the reach of e-commerce,” Snapdeal co-founder Kunal Bahl said on Twitter.

The revised policy also said that cashback provided by group companies of marketplace entity to buyers shall be “fair and non-discriminatory”. This would mean that the practice of offering cashbacks liberally may ease.

A senior executive of an e-commerce firm, who did not wished to be identified said the move could adversely impact investments being made to bring new sellers on board.

The policy, which comes into effect from February 1, made it clear that a vendor will not be permitted to sell more than 25% of its products on an online platform of a single e-marketplace firm.

But small vendors are a worried lot over this condition on vendors to sell only 25 per cent of their products through an e-commerce platform.

“Inventory of a vendor will be deemed to be controlled by e-commerce marketplace entity if more than 25% of purchases of such vendor are from the marketplace entity or its group companies,” according to the policy. The policy also tightens the compliance norms, making it mandatory for e-commerce players with FDI to submit a certificate along with a report of statutory auditor to the Reserve Bank of India, confirming compliance to the guidelines by September 30 every year.

Apart from the policy being comprehensive, industry experts said, it could make online marketplaces in India review their business models, shareholding pattern and transactions, said industry experts.

“The DIPP has made the e-commerce policy more comprehensive, insofar as the coverage of marketplace and inventory model is concerned,” said Atul Pandey, partner at Khaitan & Co. “In addition to the restrictions prescribed under the existing FDI policy, the clarification now states that inventory of a vendor will be deemed to be controlled by e-commerce marketplace entity if more than 25% of purchases of such vendor are from the marketplace entity or its group companies.”

Inventory-based model of e-commerce, followed globally by retailers such as Amazon, means an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly. It helps to keep prices low as products are bought in bulk. In comparison, the marketplace-based model of e-commerce means providing a technology platform by an e-commerce entity to act as a facilitator between buyer and seller. The government allows 100% FDI under automatic route in the marketplace model of e-commerce.

Traders body CAIT said if the steps are implemented in proper spirit, mal-practices and predatory pricing policy and deep discounting of e-commerce players will be a matter of past. It also demanded introduction of an e-commerce policy and a regulator to monitor the sector.

“Instead of investigating violations by particular companies in existing Press Note 3/2016, government has washed their past sins and formed new policy. It will be years before government investigates or penalises them. Now this compliance is conveniently postponed to september 2019,” a spokesperson of All India Online Vendors Association said.

This as per reports in the Economic Times.


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