E-commerce policy: ‘No plans to allow FDI in inventory model’

By: | Published: August 29, 2018 6:08 AM

The government isn’t planning to ease rules to allow foreign direct investment (FDI) in business to consumer (B2C) e-commerce players holding the inventory of various goods, even if such products are locally-made.

Only in the retailing of food items produced in India is FDI allowed up to 100% through government approval, which will continue.

The government isn’t planning to ease rules to allow foreign direct investment (FDI) in business to consumer (B2C) e-commerce players holding the inventory of various goods, even if such products are locally-made, department of industrial policy and promotion (DIPP) secretary Ramesh Abhishek said on Tuesday. Only in the retailing of food items produced in India is FDI allowed up to 100% through government approval, which will continue.

This means players like Amazon and Flipkart can’t float the so-called inventory model of e-commerce and continue to run only as online market places. Recently, a task force on e-commerce recommended that up to 49% FDI be allowed in e-tailers, provided they sell only domestically-produced items.

At present, up to 100% FDI is allowed in e-commerce marketplaces via the automatic route but no FDI is allowed in e-tailers holding inventory of goods, except in the food retailing. So while Amazon can run its online and offline stores for food retailing, for which it has already got government approval, it can’t hold inventory of other goods. Also, it is mandated to keep its food retailing separate from other ventures.

Speaking at a seminar organised by the Swadeshi Jagran Manch, Abhishek said: “Since FDI is not effectively allowed in multi-brand retail, we cannot allow it in e-commerce ventures selling goods (even) produced in India.”

On allegations of deep discounts offered by e-commerce players in violation of FDI rules, Abhishek said the matter needs to be investigated. The DIPP has received several such complaints, which have been forwarded to the Enforcement Directorate (ED). The secretary said the e-commerce model should be driven by efficiency, and by discounts.

The recent draft e-commerce policy, endorsed by the task force under then commerce secretary Rita Teaotia, also suggested a crackdown on deep discounts. A panel of secretaries is now going through the draft e-commerce policy suggested by the task force.

Bodies representing brick-and-mortar stores and even the Swadeshi Jagran Manch have often complained about “deep discounts” offered by foreign-funded e-commerce companies in violation of FDI rules.

The FDI policy bars an e-tailer from influencing pricing of products sold on its platform by giving discounts itself. For their part, e-commerce players have maintained that they haven’t violated any FDI rule and that discounts are not given by them but by the sellers on their platform.

However, recently, while clearing the $16-billion Walmart-Flipkart deal, the Competition Commission of India (CCI) brought the issue of discounts to the fore. It said: “Upon examination of the relevant facts, it was found that a small number of sellers in Flipkart’s online marketplaces contributed to substantial sales. Almost all of these were customers of Flipkart in B2B segment, and hence were common customers, availing significant discounts from Flipkart in both B2B segment as well as in the online marketplaces.” It added that the revenue earned from these common customers in the online marketplaces was also relatively less vis-à-vis the non-common sellers whose sales on the platform was considerably low.

But the CCI said that this is a matter of consideration for the appropriate regulatory/ enforcement authority. “The issues concerning FDI policy would need to be addressed in that policy space to ensure that online market platforms remain a true marketplace providing access to all retailers,” it said.
Currently, while the DIPP formulates and notifies FDI policies, including those on e-commerce, any violation of such rules is dealt under the penal provisions of the Foreign Exchange Management Act. This Act is administered by the Reserve Bank of India, and the ED is its enforcement authority.

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