E-Commerce Sector Under Lens. Govt Planning Stringent FDI Rules

Government of India is likely to tighten the foreign direct investment (FDI) rules for e-commerce to check companies set up by the online marketplaces from trading on their own platform. A clarification is expected from The Department of Promotion of Industry and Internal Trade through a press note where it will prohibit e-commerce platforms from holding stake in a seller, directly or indirectly. 

Major concerns have been expressed by the government that some of the e-commerce companies are not adhering to the rules and hold indirect stakes in affiliates. This was stated by one of the official .The inventory of a vendor will be deemed to be controlled by the marketplace if more than 25% of the vendor’s purchases are from the marketplace entity, including its wholesale unit.
These measures were instituted to create a level-playing field and ensure that FDI-funded e-commerce entities functioned only as marketplace.

The Confederation of All India Traders (CAIT) has regularly protested to the government that e-commerce companies were violating FDI policy.

E-commerce marketplaces can’t mandate any seller to sell any product exclusively on its platform only.

“While many loopholes have been plugged over the years, marketplaces have come up with new structures to sidestep the rules such as having their own brands, third party manufacturing, curate more brands and increase margins, that makes many rules redundant,” said an expert on FDI issues.

As the prospects of e-commerce industry grew during the pandemic some of the players side stepping and taking advantage. It has therefore forced the government to bring in some tighter control on the way the E-commerce business operates especially when it comes to FDI investments.