Amazon’s India Operations Under Threat As Govt Can Make Strict FDI Rules: How Will It Impact Ecommerce?

The foreign direct investment (FDI) rules for e-commerce is likely to be tightened by India, to check companies set up by the online marketplaces from trading on their own platform.

Clarification Prohibiting E-commerce Platforms:-

A clarification may be issued by The Department for Promotion of Industry and Internal Trade (DPIIT) through a press note, expressly prohibiting e-commerce platforms from holding stake in a seller, directly or indirectly.

One of the official said “There are concerns that some e-commerce companies are not following the rules and hold indirect stakes in affiliates. This has come to our notice”.

Some entities related to an e-commerce marketplace from selling its goods on that marketplace were banned by Press Note 2 of 2018. Also, the entity whose inventory was controlled by the marketplace, the restrictions were also applied to them.

If more than 25% of the vendor’s purchases are from the marketplace entity, including its wholesale unit then the inventory of a vendor will be deemed to be controlled by the marketplace.

In order to create a level-playing field and ensure that FDI-funded e-commerce entities functioned only as marketplace, this measures were instituted.

Online Retailers Violating FDI Rules:-

The Confederation of All India Traders (CAIT) has repeatedly complained to the government that online retailers are violating FDI rules for e-commerce. “The 25% definition is not working and blatant violations are taking place which is not in line with the spirit of law. We want to give clarity once for all,” said another official. “There is a scope for improving the current framework…,” said a senior government official.

Before it issues the clarification, the department will hold consultations with all stakeholders.

“When B2C ecommerce is not allowed, these companies have circumvented the rules by setting up affiliates. We want to ensure a level playing field for all,” the second official said.

E-commerce marketplaces can’t mandate any seller to sell any product exclusively on its platform only.

An expert said on the FDI issues that “While many loopholes have been plugged over the years, marketplaces have come up with new structures to sidestep the rules such as having their own brands, third party manufacturing, curate more brands and increase margins that makes many rules redundant”.