Indian e-commerce businesses.. Look what's here for you in the FDI plates..!

New Delhi, January 30: With the drastic changes in the Foreign Direct Investment policy, the Government of India has put the e-commerce companies into a huge question space. The Indian empire has reviewed the extant FDI policy on various sectors and made amendments in the Consolidated FDI policy circular of 2017. These amendments are scheduled to be applicable from 1st of February this year.

 

 

Earlier in the month of December 2018, the changes announced were for the ecommerce sector, which would end discounts and cashback offers that granted by the online platforms in collaboration with. The revised FDI policy issued last week explains certain principles laid down in a 2017 circular on the operations of online market places, wherein 100% foreign direct investment, or full foreign ownership is allowed.

 

The new norms bar exclusive tie-ups between e-commerce firms that follow the marketplace model and vendors using their platform. In a marketplace model, the e-commerce firm is not allowed to directly or indirectly influence the sale price of goods or services, and is required to offer a level playing field to all vendors.

 

To emphasise this point, the new norms said cash back or services, such as quick delivery, offered by e-retailers have to be applicable to all vendors on their platforms. It also said that if a vendor sells more than 25% of its wares through an e-commerce marketplace, the latter will be deemed to have an inventory model, in which FDI is not allowed. Government officials insist that the changes in e-commerce FDI norms are clarificatory in nature and are not new restrictions.

The companies Flipkart and US-based Amazon the two largest players in the burgeoning Indian e-commerce sector are meanwhile expected to be hit the hardest by the new norms come to effect from February 2019.

 

"The new e-commerce restrictions announced by the government of India on December 26 are a cause for concern. While we are still trying to understand the full implications, we fear that these restrictions will have a far-reaching negative impact both on US investments and on Indian consumers," said the US based Amazon official.

 

The former Assistant Secretary of State for South and Central Asia said the US-India Business Council (USIBC) said that a February 1 deadline is too rushed and does not allow sufficient time for companies to analyse the policy and to comply.

 

"Coming out with such a major policy change overnight without any consultative process eats into the predictability" and reliability factor that all US companies are looking into India for any foreign direct investment," he added further.

 

"I wish there was a little more consultative process, because you have companies like Walmart, which has put in USD 16 billion and they are in the process of putting more money to streamline their investment, it makes our job more difficult because how do I go and tell them please invest more and the policy would not change overnight," said Aghi, who has been working with US companies to make large scale investment in India.

 

FDI is subject to sectorial laws or regulations of the relevant industry regulator. The country meanwhile acquires FDI in the major sectors of Aviation, Infrastructure, Banking and Finance, Retail, healthcare, petroleum and natural gas. India’s GDP grew by 7.3% in 2014-15 and both the World Bank and the IMF have projected in separate forecasts that India will overtake China to become the world’s fastest growing major economy. Although FDI is welcomed in most sectors in India, it gradually needs to increase the flow to sustain the GDP growth.