Amazon and Walmart-owned Flipkart are likely to face a threat from the Indian government as FDI rules are being compromised by these companies.
Several e-commerce companies like Amazon and Walmart-owned Flipkart are likely to face a threat from the Indian government as foreign direct investment (FDI) rules are being compromised by these companies.
The government is reportedly tightening the rules in order to keep a check on these companies set up by the online marketplaces from trading on their platform.
According to a Trak.in report, the Department for Promotion of Industry and Internal Trade (DPIIT) may soon clarify the prevailing issue through a press note. The clarification would entail that the e-commerce platforms are prohibited from holding a stake in a seller, directly or indirectly.
On the condition of anonymity, one of the officials from the department revealed to the publication, “There are concerns that some e-commerce companies are not following the rules and hold indirect stakes in affiliates. This has come to our notice”.
Under pressure from sellers as well as bodies such as Confederation of All-India Traders (CAIT) to investigate the marketplaces, the department decided to tighten the rules. It found some of the ecommerce entities were selling their goods on that marketplace which were banned as per government rules mentioned in a press note in 2018. The restrictions are also applied to an entity whose inventor was controlled by the marketplace.
The report further claims that over 25% of the vendor’s purchases are from the marketplace entity, as well as its wholesale unit then the inventory of a vendor, will be considered to be restricted by the marketplace.
The government instituted the measures to ensure that FDI-funded e-commerce entities functioned only as a marketplace, thereby creating a level playing field.
The report also cited that the government received repeated complaints from the Confederation of All India Traders (CAIT) alleging that online retailers violate FDI rules for e-commerce. Another official said to the publication, “The 25% definition is not working and blatant violations are taking place which is not in line with the spirit of the law. We want to give clarity once for all.”
On the other hand, a senior government official said, “There is a scope for improving the current framework. When B2C eCommerce is not allowed, these companies have circumvented the rules by setting up affiliates. We want to ensure a level playing field for all.”
However, DPIIT will organize consultations with all stakeholders ahead of issuing the clarification which would entail that e-commerce marketplaces can’t mandate any seller to sell any product exclusively on its platform.
An expert said on the FDI issues that “While many loopholes have been plugged over the years, marketplaces have come up with new structures to sidestep the rules such as having their brands, third party manufacturing, curate more brands and increase margins that make many rules redundant”.