Friday 28 December 2018

Clarified e-commerce FDI norms will not impact stability, predictability: government official

The clarified norms on foreign direct investment (FDI) in e-commerce have not impacted the stability and predictability of the country’s regulatory environment as there is no change in laws, a senior official said on Thursday.

The official said that the Department of Industrial Policy and Promotion (DIPP) has not investigated any violations on its own but clarified the norms based on the information it received, it is upto the Enforcement Directorate to investigate and take action against those who violate the rules.

“There is no message to the foreign investors, only government policy has been clarified. There are no new laws,” the official said and explained that enough time has been given to businesses to make a transition.

The DIPP on Wednesday tightened the policy for e-commerce platforms like Amazon and Flipkart by prohibiting an entity related by equity to the e-commerce platform from doing business on the site. It restricted vendors from buying more than 25% of their inventory from the platform and its group companies, besides banning exclusive launches.

These provisions will take effect from 1 February, 2019.

“Overnight we can’t stop them or expect them to change their business. So, we have given them enough time till February,” the official said.

Amazon’s record holiday shows consumers’ appetite for spending reported a record-breaking holiday season as shoppers loaded their online baskets with items from Echo speakers to Calvin Klein clothes, suggesting consumer optimism isn’t being deterred by a tumbling stock market.

The internet retailer said “tens of millions of people worldwide” signed up for its Prime service, which offers free two-day shipping on millions of items as well as video and music streaming. In the US alone, more than 1 billion items were shipped for free using Prime, Amazon said in a statement on Wednesday.

The US was already headed into a blow-out Christmas shopping spree, as Americans are benefiting from higher employment and wages, fueling higher household cash flow. Consumers seemed to be merry despite a S&P 500 Index that has tumbled, a government shutdown and ongoing trade tensions with China.

Amazon wasn’t the only one benefiting from an insatiable consumer appetite. Mastercard and Visa rebounded after four days of declines. Mastercard said holiday sales increased 5.1% to more than $850 billion this year, the strongest growth in the past six years. Online shopping saw gains of 19% compared with 2017, according to Mastercard SpendingPulse. Brick-and-mortar retailers also gained. Nike, Macy’s, Kohl’s and PVH were all higher mid-morning in New York.

People bought “millions more” of Amazon’s own devices compared with last year, including the new Echo Dot speaker and the Fire TV Stick, the Seattle-based company said. At the same time, Amazon said more than 50% of items sold in its stores came from small and medium-sized businesses. Among the most popular items under the Christmas tree were the L.O.L. Surprise! Glam Glitter Series doll, Bose wireless headphones and clothes from Carhartt. Other brands bought through Amazon’s Prime Wardrobe service.

Amazon started the shopping frenzy out strong, with November’s Cyber Mondayalready pegged as the company’s biggest shopping day in history. Along with the Christmas sales report, the picture seems much brighter than Amazon had initially projected in its latest earnings results. In October, Amazon’s revenue and profit forecast for the holiday quarter fell short of analysts’ estimates, as investors worried about Amazon’s increased pace of spending.

While Amazon has expanded into almost every area of retail, from pharmaceuticals to groceries, its more profitable units are cloud computing and advertising. Still, Amazon, which dominates ecommerce in the US, has relied on the growth of its Prime members, who pay $119 a year for the service. Recent estimates put subscribers at just under 100 million in the US. Amazon didn’t give any new numbers for Prime subscribers in its statement on Wednesday, but said millions of unique items in the US shipped with Prime.

That kind of volume presents a challenge for logistics services like FedEx and UPS. In 2013, a larger-than-expected surge in last-minute online shopping caught UPS off guard and forced it and Amazon and other retailers to offer refunds to customers who didn’t receive their orders on time for Christmas. This year, UPS said it expects to deliver an average of more than 31 million parcels a day during the holidays.

Ecommerce rule tweak not change in law: Government

The updated norms for foreign direct investment in ecommerce will not impact the stability and predictability of the country’s regulatory environment, a senior official said on Thursday, defending changes seen disrupting the current state of online retail.

There is no change in law, the official said, even as dominant players fretted that key differentiators such as online exclusive brands, cashbacks and priority deliveries, among others, may not be possible anymore. ET had reported on Thursday the policy would be a jolt for Amazon and Walmart-owned Flipkart, the dominant online platforms in India.

“There is no message to the foreign investors, only government policy has been clarified. There are no new laws… There should be fair, non-discriminatory trade,” the official said and explained that enough time has been given to businesses to make the transition.

“Overnight we can’t stop them or expect them to change their business. So, we have given them enough time till February 1,” the official said. The official said the Department of Industrial Policy and Promotion (DIPP) didn’t look at individual companies or their business structures before announcing the changes. He refused to answer questions on how the policy will impact Amazon and Flipkart.

“The policy is not cast in stone; we have tried to improve it,” the official said, adding the government is yet to study if a subsidiary of an online marketplace can open a front company or a subsidiary and sell on that platform. The new FDI rules state that an online marketplace cannot sell products from a vendor in which they have a stake.

The official said DIPP has not investigated any alleged violations on its own but modified the norms based solely on the information it had received. India’s retailers have repeatedly complained that ecommerce companies were violating the ban on business-to-consumer (B2C) commerce, prompting the change in rules.

“It is up to the Enforcement Directorate to investigate and take action against those who violate the rules,” the official said.

The current policy allows 100% FDI under the automatic route in business-to-business (B2B) ecommerce but prohibits any foreign investment in B2C ecommerce. The limits remain unaltered but the government has changed rules to ensure that FDI-funded ecommerce does not undertake B2C ecommerce in the face of swelling opposition from the trading community. Bricks-andmortar retailers have also been lobbying the government to rein in the online marketplaces over discounts and other incentives that have been drawing away customers.

No entity having equity participation by an ecommerce marketplace or its related entities can sell on that marketplace. The marketplace itself cannot discriminate among vendors and one seller cannot have more than 25% of sales on one ecommerce marketplace. The official said the changes were aimed at better enforcement of the policy as enunciated by Press Note 3 of 2016, which had banned FDI in the inventory model of ecommerce and laid down the conditions for ecommerce marketplaces. FDI is only allowed in the marketplace model, offering a platform for vendors to sell to customers.

Ecommerce companies will need to review their operating strategy in India, said Rajiv Chugh, national leader, policy advisory and specialty services, EY India.

“This will impact backend-related wholesale group entities and need to remove them from the ecommerce value chain,” he said. “The time has come to look at franchise channels, rather than equity investment channels to do business in India.”

The department is in the process of drafting a policy for the ecommerce sector, which will be released “very soon”, said the official cited above. “We need to have a policy on ecommerce because it gives a road map for what the private sector and the government want.”

An earlier draft of the ecommerce policy floated by the commerce department had recommended a regulator for the sector, which had become a contentious issue. “Whether or not we a need a regulator will be there in the policy,” the official added.

Thursday 27 December 2018

Norms for e-tailers tweaked to check discounts, cashbacks

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.

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.

While Flipkart did not respond to queries from TOI, 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.

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.

“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.

E-tailers, traders hail new norms but small vendors fret over 25% limit

 E-commerce firms and trade groups Wednesday appreciated the new rules for the sector, noting that the norms would help create level playing for all sellers.

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

Commending the new guidelines, Snapdeal founder and CEO Kunal Bahl in a tweet said, "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."

While there was no comment from Flipkart, e-commerce firm Amazon India said, "We are evaluating the circular".

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 monitoring and compliance mechanism of the new policy has been questioned by All India Online Vendors Association as the existing policy already bars e-commerce companies with foreign ownership from selling its own inventories and influencing pricing of products on its platform.

"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.Small and medium-sized vendors appreciated the norm barring e-commerce firms from discrimination among vendors in any form but questioned the feasibility of its implementation by platforms.

"Rule directing e-commerce companies to end discriminatory practice is highly appreciable. They either promote their products, firms owned by them or big brands that can pay well. Government should clarify on how will it ensure compliance of these rules," Kavi-The Poetry Art project co-founder Amit Singh said.

He, however, said government should re-think on posing restriction on vendors from selling only 25 per cent of product from an e-commerce platform.

"We are in home decor segment. Most of our products are sold through e-commerce specialising in home decor compared to sale on general e-commerce platform like Flipkart and Amazon. Government should think about segment specific sales and re-think on imposing 25 per cent restriction," Singh said.

Children accessories maker Nappy Monster's co-founder Sumantha Rathore said that 25 per cent sales restriction will be deterrent for small vendors who work from home and are entirely dependent on sale from a specific category website.

"Small vendors like us will need to enhance production capacity, investment in inventories to meet the requirement. With 25 per cent sale restriction, a small handicraft vendor selling 1,000 units through a nice commerce platform will need to invest in inventory to produce 4,000 units. This will deter entrepreneurship that e-commerce firms have created by blocking capital," Rathore said.

The revised norms are aimed at protecting the interest of domestic players, who have to face tough competition from e-retailers having deep pockets from foreign investors, according to the ministry of commerce and industry.

The policy would be effective from February 2019.

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.

The CAIT also demanded introduction of an e-commerce policy and a regulator to monitor the sector.