E-commerce companies with foreign investments, such as Amazon and Flipkart, will have to submit a report prepared by statutory auditors, confirming their compliance of FDI policies by September 30 every year, the government has said.
Although the gazette notification on new FEMA rules on e-commerce, issued on Thursday, is largely based on the foreign direct investment (FDI) norms announced by the department for the promotion of industry and internal trade (DPIIT) in December last year, it doesn’t explicitly name the authority with which e-tailers have to submit these compliance reports.
The December 2018 notification on FDI rules had suggested that the reports be filed with the Reserve Bank of India.
“…e-commerce marketplace entity with FDI shall have to obtain and maintain a report of statutory auditor by 30th of September every year for the preceding financial year confirming compliance of the e-commerce guidelines,” the gazette notification said.
The latest notification on FEMA comes amid fresh sets of complaints by brick-and-mortar stores against the alleged violation of FDI rules by e-tailers. The DPIIT had issued a notification in December 2018, which barred online marketplaces with foreign investments from selling products of companies where they held stakes or controlled inventory, and also banned exclusive marketing arrangements, among others. The government, however, stated that the notification was only a reiteration of existing rules and it was forced to clarify as it had received complaints that the e-commerce players were giving discounts on products sold on their platforms, thus, violating the FDI rules. Commerce and industry minister Piyush Goyal has already warned e-commerce companies of strict action if they do not stop predatory pricing on their platforms.
But the December 2018 notification had upset players like Amazon and Flipkart, who had sought more time to implement the rules, although the February 1, 2019 deadline to comply with the rules was not extended. In October, US commerce secretary Wilbur Ross asked India to balance the interest of large e-tailers like Amazon and Walmart-backed Flipkart with offline retailers in its e-commerce policy.
Speaking in the presence of Ross, Goyal, however, had asserted that there was no change in India’s FDI policy for e-commerce. “E-commerce is an agnostic platform for trading, and not meant for predatory pricing. We don’t change rules mid way. We provide stable regulatory framework,” Goyal had stressed. “Small retail is a sensitive subject, so India has restricted FDI in multi-brand retail at 49%.”
The Confederation of All India Traders has been pressuring the government not to give in to demands of global e-commerce players and American industry chambers to amend the FDI norms. The traders’ body has often complained about predatory pricing and discounts, along with other violations of the FDI policy, especially during the festive sales season.