The Department of Industrial Promotion & Policy revised its guidelines on FDI in e-commerce and set out new rules for marketplaces and vendors, with relation to inventory and FDI, last week. The new guidelines will come into effect from 1 February, 2019. 

The government’s updated policy explains principles laid down in the FDI Policy 2017, which allows 100% FDI in e-commerce via the automatic route.

Here’s a look at what changes now

  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.

Read a copy of new rules here.

What stakeholders said about FDI, deep discounting, anchor sellers

At MediaNama’s #NAMApolicy discussions on India’s draft National E-commerce policy held in Delhi and Bangalore in October, stakeholders and policy wonks from the industry discussed issues surrounding the then-scrapped draft policy. Note that these are paraphrased quotes.

On FDI in e-commerce

  • Inventory based model harmful for small traders – Press Note 3 allows platforms, but platforms obviously cannot hold inventory. Why would they need inventory? No price distorting discounts can be given. You come with deep pockets and billions of dollars, does that mean you can do anything you want? (Ashwani Mahajan, Swadeshi Jagran Manch)
  • Is FDI the place to regulate pricing? – The ban on influencing prices is coming from an FDI regulation. If the rationale is that consumers will be harmed from predatory pricing resulting from influencing prices, thats a different conversation. (Nehaa Chaudhari, Ikigai Law)
  • Price influencing is a competition issue rather than an FDI issue – FDI is the wrong place to regulate marketplace or anti-competitive behavior. Deep discounts by itself are not bad as long as they are not harmful for the consumer. Free market, competition, and innovation benefit the consumer. The argument that small traders cannot compete with online marketplaces because they have deep pockets is a larger structural issue, which raises questions like what are the problems small traders are facing: overhead costs, permissions, access to funding, labour laws, etc. It is not a pricing or discounting issue. (Nikhil Narendran, Trilegal)

On discounting tactics

  • Why single out e-commerce players? – Deep discounting is offered by chains like Croma and Reliance as well, why are they allowed, but e-commerce players are not? They even said there would be a sunset clause for all of this. (Winnie Shekhar, IndusLaw)
  • Discounting by large offline chains – When we talk about deep discounting offline, we’re talking about that one tiny brick-and-mortar store…. Additionally, if you’re trying to examine anti-competitive conduct in terms of deep discounting by online retailers versus the discounts offered by this one brick-and-mortar store, they are both competing in the same market. The CCI has addressed some of these issues, but there is inconsistency in how they see what constitutes a relevant market. It has either sidestepped the question or given an inconclusive answer. (Nehaa Chaudhari, Ikigai Law)
  • Apart from B2B and B2C forms of discounting, there are also cashbacks, zero-interest EMIs. But in the offline world, retailers like Vijay Sales also give zero-interest EMI. Cashbacks often come from banks. Offline retailers are looking at volumes which is why they can offer discount or zero-interest EMI. Why is it that the e-commerce companies are considered to be illegal, particularly when, in the light of Press Note 3, it’s not a violation of the regulations? (Anubha Sital, Induslaw)

Read our coverage of #NAMApolicy discussions on the draft National E-commerce Policy here.