e-commerce Current Affairs - 2019
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The Department of Industrial Policy and Promotion (DIPP) under the Ministry of Commerce has clarified that the Foreign Direct Investment (FDI) rules for e-commerce have not allowed foreign investment in the inventory-based model or multi-brand retailing.
Provisions for FDI in e-commerce
The DIPP has clarified on the following provisions:
- FDI is allowed only in the business-to-business (B2B) e-commerce segment and not in the business-to-consumer (B2C) segment which in effect is the multi-brand retail or the inventory-based e-commerce model.
- DIPP further has clarified that through FDI in B2B e-commerce, an e-commerce entity providing marketplace will not, directly or indirectly, influence the sale price of goods or services. If it does so, such renders such business would be rendered as an inventory based model.
The DIPP clarifies that an e-commerce platform operating an inventory based model does not only violate the FDI policy on e-commerce but also circumvents the FDI policy restrictions on multi-brand retail trading.
The new norms for the foreign direct investment (FDI) in e-commerce, bars e-commerce firms from selling products of entities in which they have an equity stake.
Why the new norms?
The new norms are brought in by the government to plug-in some loopholes like:
- To bypass the rules which restricted large sellers on platforms such as Flipkart and Amazon from contributing more than a quarter of sales, online retailers had set up structures to get around those loopholes by mandating other sellers to buy from those large sellers and then, in turn, sell those products on e-marketplaces.
- Large sellers formed multiple entities, which sold their products separately on online marketplaces.
- The small traders were complaining that deep discounts offered by the likes of Amazon and Flipkart are driving them out of business.
- The new norms aim to tackle the anti-competitive behaviour by e-commerce entities and to ensure that there is no wrong subsidization and the marketplace remains neutral to all vendors.
How will it affect e-commerce companies?
The impacts of the new norms are:
- The e-commerce companies like Amazon and Flipkart would be adversely affected because Amazon has several such joint ventures, including Cloudtail and Appario. Even Flipkart has exclusive partnerships with top smartphone brands such as Xiaomi and Oppo. The new norms will adversely impact their business models.
- The critics blame that the new norms are not in sync with the spirit of competition and free market economy because Only those exclusive arrangements that have an appreciable adverse effect on competition are prohibited under the Competition Act.
The new norms are welcomed by stating that the new norms will enable a level- playing field for all sellers especially MSMEs and help them leverage the reach of e-commerce.