DIPP stiffens Ecommerce Guidelines
The Department of Industrial Policy and Promotion (“DIPP”) has published a press release on 26th December, 2018[1] clarifying the Ecommerce aspect in Foreign Direct Investment (“FDI”) which going to be effective from 1st February, 2019. The said press note emphasise on the distance that e-tailers have to maintain with their vendors in order to effectively achieve fair competition in the market.
The FDI Policy had earlier provided a wider arena
to the definition of e-commerce, whereby including computers, television
channels and any other internet application used in automated manner. Moreover,
100% FDI under automatic route is permitted in marketplace model of e-commerce
but at the same time thwarting FDI in inventory based model.
The DIPP has now accomplished in plugging the
loopholes in the FDI Policy by tightening the norms around ownership and
control over inventory by e-commerce entity in a marketplace service. The
online market players are now barred from selling the products online, where
they hold considerable stake, whereby, if the marketplace entity or its group
companies are controlling more than 25% of the purchases of the vendor, it will
be deemed to be controlled by e-commerce marketplace entity. Thus, the same
would not be allowed to sell its products on the platform run by such
e-commerce marketplace entities. We are presuming that the same, to a larger extent
may affect the in-house selling of the e-commerce platforms.
Additionally, the major clarification states that
no e-commerce marketplace entity would be allowed to have a price control over
the seller and further stopped from discriminatory cashback. The e-commerce
marketplace can only provide support services such as logistics, warehousing
and advertisement/marketing. Moreover, such marketplace will provide
non-discriminatory arrangement for sellers having parallel businesses and
stopping exclusive selling of products and flash sales.
The DIPP has directed that the e-commerce
marketplace to furnish a certificate along with a report of statutory auditor
to Reserve Bank of India, confirming compliances of the FDI policies, which is
required to be filed on 30th September,2018 every year.
Hence, the major implications are:
- No
more flash sales and exclusive tie-ups - E-commerce
marketplace are restricted to sell products wherein holding stake - Restriction
on in-house selling - Annual
compliances to RBI
We are presuming that DIPP may come out with fresh draft policies, in order to manage the commercial challenges to be faced by the companies. This move will not only stringent the activities of e-commerce marketplace but may also prevent some e-commerce entities to raise Foreign Direct Investment.
Contributed by – Shrusti Jena Maharathy,
Legal Associate, King Stubb and Kasiva
[1] http://pib.nic.in/PressReleseDetail.aspx?PRID=1557380
King Stubb & Kasiva,
Advocates & Attorneys
New Delhi | Mumbai | Bangalore | Chennai | Hyderabad | Kochi
Tel: +91 11 41032969 | Email: info@ksandk.com
By entering the email address you agree to our Privacy Policy.