The latest set of amendments to the foreign direct investment (FDI) policy on e-commerce “was needed” to ensure that platforms do not operate an inventory-based model and circumvent policy restrictions on multi-brand retail trading, the government clarified on Thursday.
“…government continued to receive complaints that certain marketplace platforms were violating the policy by influencing the price of products and indirectly engaging in inventory based model. An e-commerce platform operating an inventory based model does not only violate the FDI policy on ecommerce but also circumvents the FDI policy restrictions on multi-brand retail trading. Therefore, latest Press Note on FDI policy on e-commerce sector was needed to ensure that the rules are not circumvented,” the Centre said.
In its response to comments on the amendments that will be effective from February 1, the Department of Industrial Policy and Promotion (DIPP) said that the FDI rules for e-commerce have not allowed foreign investment in the inventory-based model or multi-brand retailing and also pointed out that the provisions were not against the interest of consumers, noting that only fair, competitive and transparent business practices would be beneficial for buyers.
“Certain averments suggest that Press Note 3/2016 had covertly allowed multi-brand retail trading. Such a view is completely contrary to the specific provisions of Press Note 3/2016, which unambiguously provided that FDI is not permitted in the inventory-based model of e-commerce which amounts to multi-brand retail,” the DIPP said in a note.
As per the FDI policy on e-commerce sector, while 100% FDI under automatic route is permitted in marketplace model of e-commerce, FDI is not permitted in inventory based model of e-commerce.
On the aspect of the new policy prohibiting sale of private labels on e-commerce platforms, the DIPP clarified that present policy did not impose any restriction on the nature of products that could be sold on the marketplace.
In the new policy announced last month, the government tightened the norms for e-commerce players, barring them from selling products of the companies in which they have shareholdings. February 1 onwards, e-commerce companies cannot enter into agreements for the exclusive sale of products, according to the rules.
These provisions are also not against the interest of consumers, the government stressed in the press not issued on Thursday. Fair, competitive and transparent business practices which are in compliance with the law will better protect consumers in both short as well as medium and long-term, it said.
In another decision, the government aimed to put a cap of 25 per cent on the inventory that a marketplace entity or its group companies can purchase from one vendor.