On April 3rd, Tuesday, the government clarified its policy on FDI (Foreign Direct Investment) in e-commerce and online retail consumer businesses that operate as marketplaces. The Department of Industrial Policy and Promotion (DIPP) as per Press Note No 3 (PN3) of 2016 Series has not only allowed 100 per cent FDI through automatic route but it has also expanded the scope of a marketplace to include support services to sellers like warehousing, order fulfilment, call centre, logistics, payment collection and other services.
The recent update from DIPP on FDI rules are likely to have a material impact on certain important aspects of e-commerce business in India. The idea is clear, the government wants to level the playing field for brick-and-mortar retail and this step was taken after repetitive complaints by retailers about the predatory pricing by online portals.
Here are four takeaways from the recent update DIPP on FDI rules for eCommerce companies.
Twenty-five percent cap for each vendor...
E-commerce players now will be unable to sell below market prices and not more than 25 percent of sales will happen via one vendor. This is in line with a similar restriction in FDI in wholesale trade. This will ensure broad-basing of sellers, and force the players to move to a “pure play marketplace” model.
Clarification on Inventory & Marketplace Mode...
The Press Note by DIPP specifically defines what a “marketplace model” is and what an “inventory model” is. It clarifies that no FDI is permitted in the “inventory mode”, and also as to what is permitted and prohibited for marketplaces.
No flashy Sales...
Marketplace eCommerce players will now be prohibited on influencing the sale price of goods and services. Major players like Flipkart, Snapdeal, Amazon and others are not only barred from giving discounts directly according to new rules but they may not be able to offer promotional programmes such as cash-back offers as well.
Ambiguity...
The language of press note suggests that sale of “digital goods” in an inventory model will not be allowed. However, there is a lack of clarity on what is meant by “digital goods” which creates ambiguity for players that are involved in the business of providing online content, among others.
