The Parliamentary standing committee on commerce has suggested that the government strengthen the enforcement mechanism under its foreign direct investment (FDI) policy to take “proactive action” against e-commerce giants flouting FDI rules.
If adopted, any such proposal could spell trouble for e-commerce firms like Amazon and Flipkart, which have often been accused by players representing brick-and-mortar stores of contravening FDI rules that bar marketplaces from offering predatory discounts through sellers on their platforms, among others.
For their part, these e-tailers have maintained that they always comply with the relevant rules.
In a report submitted to Parliament on Thursday, the panel also flagged the “limited” scope of the FDI policy in addressing anticompetitive practices in e-marketplaces, such as “self-preferencing, lack of platform neutrality, deep-discounting, exclusive agreements and preferential treatment to selected sellers”.
The panel asked the department for the promotion of industry and internal trade (DPIIT) to firm up a comprehensive framework under the national e-commerce policy that addresses these issues, “irrespective of the marketplace being funded by foreign or domestic entities”. The House committee is chaired by V Vijayasai Reddy, a leader of the YSR Congress party.
The government is already in the process of formulating a comprehensive e-commerce policy, which is expected to define e-commerce and stipulate rules on the role of marketplace entities and liabilities of e-commerce companies, among other related issues.
The panel observed that while the FDI policy on e-commerce attempts to address various issues in the sector, “it fell short in its enforcement mechanism”. “A time-bound investigation mechanism is required to address the fast-paced digital market and to ensure that unfair market practices do not occur due to sluggish investigation process,” it said.
At present, while the DPIIT formulates and notifies FDI policies, any violation of such rules is dealt with under the penal provisions of the Foreign Exchange Management Act. This law is administered by the Reserve Bank of India (RBI), and the enforcement directorate (ED) is its enforcement authority.
In December 2020, the commerce and industry ministry had asked the RBI and the ED to take “necessary action” on allegations made by the Confederation of All India Traders against Amazon, Flipkart and Walmart relating to the violations of the FDI and other relevant rules. However, senior executives of the traders’ body have often complained that there has been no perceptible action against the e-commerce players despite its complaints.
The House panel said that all e-commerce companies must be registered with the DPIIT, which will be the first step towards streamlining regulations and gauging the progress of the sector.
The committee also recommended wider power to the Competition Commission of India to “prohibit e-marketplace giants from engaging in anti-competitive transactions that may irremediably tip the Indian e-commerce market”.
At the same time, frequent changes to the FDI policy bring uncertainty to the policy regime. So, a stable FDI policy regime in e-commerce needs to be in place to boost the confidence of potential investors, it said.
Highlighting the lack of adequate data relating to the e-commerce sector, including those on the share of e-commerce market in GDP and employment opportunities generated by e-commerce, the panel asked the government to collate such data to be able to firm up better policy interventions.