Ministry of Commerce & Industry recently reviewed the policy on Foreign Direct Investment (FDI) in e-commerce.
What does the guidelines say?
E-commerce entities would engage only in Business to Business (B2B) e-commerce and not in Business to Consumer (B2C) e-commerce.
FDI Limit - E-commerce means buying and selling of goods and services including digital products over digital & electronic network.
100% FDI under automatic route is permitted in marketplace model of e-commerce.
Marketplace based model of e-commerce means providing an IT platform by an e-commerce entity on a digital & electronic network to act as a facilitator between buyer and seller.
However, FDI is not permitted in inventory based model of e-commerce.
Inventory based model of e-commerce means an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly.
Control - E-commerce entity providing a marketplace should not exercise ownership or control over the inventory i.e. goods purported to be sold.
If more than 25% of the inventories of an E-commerce entity are linked to a single seller, it ceases to be an intermediary between buyers and sellers.
Such an E-commerce entity will be treated as an inventory based model rather than a market-place platform.
Equity holding - An entity having equity participation by e-commerce marketplace entity will not be permitted to sell its products on the platform run by such marketplace entity.
Hence, a product in which, say, Amazon or Flipkart have a stake cannot be sold on their respective platforms.
Responsibility - In a marketplace model, goods/services made available for sale electronically on website should clearly provide name, address and other contact details of the seller.
Post sales, delivery of goods to the customers and customer satisfaction will be responsibility of the seller.
Any warrantee/ guarantee of goods and services sold will be the responsibility of the seller.
Also, e-commerce marketplace entity will not mandate any seller to sell any product exclusively on its platform only.
Price - E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and should maintain a level playing field.
Also, cash back provided by group companies of marketplace entity to buyers should be fair and non-discriminatory.
The above decision will take effect from 01 February, 2019.
What are the concerns?
The guidelines maintain restrictions on cash back services and exclusive product deals on e-commerce platforms.
However, it is hard to justify why online stores should not be allowed to display their own labels, when offline ones are allowed to do so.
For anti-competitive practices such as deep discounts, the marketplace can self-regulate or the competition commission of India can step in to check such practices.
But the guidelines went against the government’s assurance of ‘minimum government, maximum governance’, by leaning towards heavy-handed regulation.
In a retail market as large and diverse as India’s, e-commerce players still play a smaller role and the disaggregated retail sector plays a major role.
Rather than promoting the sector, the guidelines curb expanded options for producers from e-commerce sector and hence is indifferent to consumer choice and welfare.
