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.”
ECOMMERCE POLICY
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.
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.”
ECOMMERCE POLICY
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.
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