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Amazon and Flipkart seek extension to comply with new FDI policy

Amazon and Flipkart have asked the government for an extension on the 1 February deadline to comply with the new FDI policy for e-commerce, reports the Economic Times. Amazon has asked for time until 1 June, while Flipkart has asked for an extension of 6 months, to 1 August.

MediaNama has reached out to Amazon and Flipkart for comment and will update this when we hear from them.

According to ET, Amazon wrote to the Department of Industrial Policy and Promotion (DIPP) saying that it would be difficult for it to comply with the new policy by the deadline as it would have to overhaul its business model and systems. The company also said that it would need more time as there had been no pre-policy consultations this time, unlike when the Press Note 3 of 2016 was framed. All contracts with every seller on the platform would have to be renegotiated.

Anonymous sources told ET that two requirements have made major changes necessary in the platforms.

  • One is that no vendor can have ownership/equity stake by the marketplace or its group companies.
  • The second is that no vendor can sell more than 25% of their goods through the marketplace, or their inventory would be deemed as controlled by the marketplace.

Such a situation would make the marketplace ineligible for FDI under the FDI policy in e-commerce.

The revision to FDI in e-commerce

The DIPP released the revised FDI in e-commerce policy in December and said it would come into effect starting February 1, 2019. Here’s a look at the changes to the policy:

  1. The updated policy does not allow marketplaces to exercise control or ownership over the inventory of vendors on their platforms. For example, if a marketplace such as Amazon or Flipkart exercises ownership of control over inventory, this platform would no longer be a marketplace, but an inventory-based e-commerce business.
  2. The new policy reiterates that if a vendor sells over 25% of goods (presumably of all the goods sold on the platform) on the e-commerce marketplace, the marketplace will become an inventory based model in which FDI in not allowed. To be clear, the earlier FDI in ecommerce policy from 2017 had the same 25% cap on vendor sales, but now it places the responsibility on the marketplaces to ensure this does not happen.
  3. If a marketplace has an equity stake in a vendor/seller, or if it controls its inventory, the vendor is not permitted to sell its products on the marketplace.
  4. Warranty and guarantee of goods and services sold on marketplaces is the responsibility of the seller/vendor, and not the platform.
  5. The marketplace cannot influence prices directly or indirectly and has to offer a level-playing field all vendors/players – those controlled by marketplaces, or other vendors. Platforms will provide the same services of cashbacks, fulfillment, logistics, warehousing, advertisements, marketing, payments, finance, etc across all vendors.
  6. The new norms dictate that marketplaces cannot mandate any seller to sell any product exclusively on the marketplace.

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