GSP benefit withdrawal: India unlikely to review FDI rules to placate US

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Published: March 7, 2019 4:37:32 AM

Also, rules out softening its stance on data storage guidelines for card payment firms.

Amazon had asked the government to extend the deadline by four months and Flipkart, too, wanted more time to adapt.

The government has no plan to review the latest foreign direct investment (FDI) guidelines in e-commerce to placate the US, an official source told FE. The new FDI rules — expected to hit Amazon and Walmart-backed Flipkart — are said to be the one of the immediate triggers for the Trump administration’s decision this week to withdraw duty benefits on annual exports worth $5.6 billion from India under the so-called Generalised System of Preferences (GSP) by May.

The government is also unlikely to soften its stance on its drive to force global card payments companies such as Mastercard and Visa to move their data relating to Indian customers to India, another sticky issue with the US, said another source.

Also read | What is GSP status; how US withdrawal of zero duty import benefit hurts India

On December 26 last year, the government tightened the FDI rules in e-commerce and barred online marketplaces with foreign investments from selling products of the companies where they hold stakes or control inventory, and also ban exclusive marketing arrangements. It said the inventory of a vendor (except food retail) will be “deemed to be controlled by e-commerce marketplace if more than 25% of purchases of such vendor are from the marketplace entity or its group companies”. The government said the rules were aimed at ensuring that earlier FDI guidelines, which had barred e-commerce marketplaces from offering discounts themselves, are followed in both letter and spirit, amid complaints of repeated violations.

The government also asked companies to comply with the new FDI rules by February 1 and didn’t heed a request by Amazon and Flipkart to extend the deadline. Amazon had asked the government to extend the deadline by four months and Flipkart, too, wanted more time to adapt.

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The new rules were seen particularly tough for Walmart, which had acquired a 77% stake in Flipkart in a $16-billion deal only months before.

The government was cautious, given offline traders’ threat to step up agitations if any relaxation was granted to e-tailers. As such, the government has been perceived to have been lax in implementing FDI rules (especially the restriction on discounts offered by e-tailers) strictly for so long.

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