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Committee formed to examine issues related to FDI in e-commerce, says Piyush Goyal

Photo of Piyush Goyal
Source: <a href="https://twitter.com/PiyushGoyal?ref_src=twsrcgoogletwcampserptwgrauthor">@PiyushGoyal</a>/Twitter

A committee has been formed to examine issues related to FDI in eCommerce, Piyush Goyal informed the Parliament on July 24. The committee was formed on July 12 under DPIIT’s additional secretary and includes members from the department of commerce, department of consumer affairs, department of legal affairs and MSME ministry. He also said that the government has received suggestions from stakeholders on the draft e-commerce policy which are currently under consideration.

On December 26, 2018, the then DIPP published Press Note 2 of 2018 which amended and tightened regulations applicable to e-commerce entities that have FDI, it came into effect on  February 1, 2019.  The policy has caused significant disruption in the operations of e-commerce companies:

  • Walmart had privately told the US government that India’s FDI in e-commerce policy was regressive in January this year.
  • In a meeting with Commerce minister Piyush Goyal in June this year, Indian e-commerce companies raised concerns about non-compliance with the FDI policy, highlighting that if e-commerce companies were mere marketplaces, then there wouldn’t be losses in thousands of crores. They also highlighted that Press Note 2 had clauses regarding statutory certification by auditors and those haven’t been announced by RBI.

CCI’s market survey sought details on FDI from e-commerce companies

It is worth noting that in a market study carried out by the Competition Commission of India, it sought details on how inventory based models work, on pricing of products and control over the pricing, from all major e-commerce firms in India. On FDI in e-commerce, the  study sought details for:

1. Exclusivity and contractual agreements: While the new FDI policy for e-commerce prohibits marketplaces from mandating exclusive contracts with sellers, e-commerce marketplaces can put in contractual restrictions that might impact or even participation in other marketplaces. The study sought to determine:

  • Types of contracts: whether contracts are negotiated, standard contracts or exclusive contracts, and in what ratio.
  • Clauses in the contract: The study also asks participants to highlight the clauses that are most likely to be there in a contractual agreement with a retailer, including the lowest price of a product being consistent across marketplaces, or the lowest at the marketplace in question; terms of sale being the same as on the retailers website, etc.

2. B2B services: The study also inquired about the amount of FDI their B2B sellers of marketplaces attract, and the categories in which the marketplaces deal in B2B. Most importantly, it asked about the percentage of sales of the marketplace that the B2B service contributes, to what kinds of entities it sells, including whether it sells to other marketplaces, and its gross merchandise value.

This year in FDI in e-commerce

  • DIPP had started a consultation process in January 2014, which revealed that industry bodies and MNCs favoured FDI in ecommerce but traders’ bodies opposed it.
  • As an outcome of this, in March 2016, the government disallowed FDI in B2C e-commerce in India, while FDI in marketplaces was allowed to continue.
  • The new policy was proposed in August 2018 and the draft that leaked to the press had several provisions to which Amazon and Flipkart had raised objections.
  • (In between all of this, DIPP had considered scrapping the overall E-commerce Policy for India altogether.)
  • The Press Note 2 2018 came into effect from 1 February 2019, despite Amazon and Flipkart requesting that the deadline be extended by 4 and 6 months respectively.
  • Along with these e-commerce companies, US government had voiced its concerns over the new regulations to Indian government officials, and pushed for the regulation to become a bilateral issue between US and India.

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