DIPP Confirms 25% Rule For Ecommerce Vendors And FDI Rules For New Companies

Last year, Department of Industrial Policy and Promotion (DIPP) had issued the ‘Consolidated FDI Policy Circular 2015’ (FDI Policy), which aimed at regulating and monitoring FDI in various industries, including ecommerce.

One rule mentioned in that circular was related to the 25% sale restriction for ecommerce vendors, and much confusion ensued over this one rule.

After a year, DIPP has issued clarification about the 25% restriction, besides clarifying several FDI related rules for all industries in general.

25% Limitation For Online Vendors Is A Rule!

DIPP has issued a clarification for all ecommerce portals, and have stated that a single vendor cannot sell more than 25% of the overall sales volume, in a financial year.

The time period of this 25% rule was not mentioned earlier, which prompted confusion among online vendors and ecommerce portals. Some believed that the 25% limitation is valid for every month.

DIPP, in their newest notification said, “An e-commerce entity will not permit more than 25% of the sales value on financial year basis affected through its marketplace from one vendor or their group companies,”

This new notification has been updated in their last year’s consolidated FDI policy circular.

Hence, WS Retail, which is wholly owned subsidiary of Flipkart, and the biggest vendor on Flipkart, cannot sell more than 25% of overall sales volume on the portal, in a financial year.

As per some unnamed officials, this rule has been put in place, so that different vendors are able to showcase their products within the FDI powered marketplace, and no single vendor can impose monopoly. The policy document also makes sure that no online marketplace, funded by FDI, is able to manipulate prices of commodities sold on their platform.

Other FDI Related Clarifications By DIPP

• ‘Competent Authority’ means concerned and relevant ministry/department which has been empowered to grant government approval for FDI under the FEMA (Foreign Exchange Management Act) Regulations. In their policy document, ‘competent authority’ was authorized to grant permission, but confusion ensued as to what exactly a ‘competent authority’ is. This has now been cleared.
• In sectors where 100% FDI is allowed, LLP (limited liability partnership firms) can be converted into company and vice-versa, under automatic route. This will help companies to make the exit route easier, without being hampered by unnecessary Govt. interruptions.

If you are an ecommerce vendor, then do let us know whether this decision by DIPP makes sense or not, by commenting right here!