Huge Setback For Amazon, Flipkart & Snapdeal: DIPP Says Marketplace Model In Ecommerce is Not ‘Recognized’

On one hand Indian Government is encouraging Digital India, Startup India and Entrepreneurship; on the other hand its killing the industry with their own hands.

In a major setback for portals such as Amazon, Flipkart and Snapdeal, Department of Commerce and Department of Industrial Policy and Promotion (DIPP) has said that marketplace model is ‘not recognized’ under India’s FDI policies.

Amazon, Flipkart, Snapdeal along with several other ecommerce portals are right now using marketplace model for their expansion. In case Indian Govt. fails to recognize their business model, then their future in India is in shadows.

Last year, CAIT, an association of brick and mortar businesses in India had filed a case against ecommerce companies, stating that they are illegally selling products considering that these are only marketplaces and they should only provide a ‘platform’ for buyers and sellers.

All India Footwear Manufacturers and Retailers Association (AIFMRA) have also filed separate petition in High Court, seeking a ban on ecommerce portals as they are violating FDI rules.

Even pharma industry has declared an all out war against ecommerce by staging bandh and protests.

In their reply to High Court, DIPP said, “FDI is a capital account transaction and thus any violation of FDI regulations are covered by penal provisions of FEMA (Foreign Exchange Management Act),”

In fact, DIPP has proposed to High Court that financial auditors and watchdogs should probe these ecommerce portals for FDI violation. They informed the Court that FDI is only allowed in B2B ecommerce, and any foreign funds invested in B2C (including marketplace models) is a clear cut violation of FDI rules.

This is indeed a bad news for Indian ecommerce, which is expecting to attract more investments for even greater expansion. This new development from the Govt. can now deter foreign investors from coming into India.

We had reported earlier that Government agencies are meeting and formulating a plan to solve this complex issue of ecommerce in India, but it seems nothing concrete has come out of it.

Has the door finally shut for B2C ecommerce in India? Will Flipkart, Amazon and Snapdeal need to change their business model?

We will keep you updated as more detail comes in.