SUMMARY
Changes were brought in FDI policy for ecommerce in December
DIPP said intervention was needed because of complaints by vendors
Amazon, Flipkart may have to change their operations model
At the time when leading Indian ecommerce marketplaces have expressed concern about the changes in FDI policy for ecommerce, the Department of Industrial Policy and Promotion (DIPP) has clarified that through the changes announced last month the government has only reiterated its earlier policy provisions to ensure better implementation of the policy in letter and spirit.
In a media statement, DIPP explained that the intervention had been required because of “complaints that certain marketplace platforms were violating the policy”. DIPP noted that there have been comments that the changes are against the interest of consumers and said that consumer interests are protected and promoted.
“It is felt that fair, competitive and transparent business practices which are in compliance with law will better protect consumers in both short as well as medium and long-term,” DIPP explained.
The regulator also clarified about private labels saying that present policy does not impose any restriction on the nature of products which can be sold on the marketplace.
The changes to the ecommerce FDI policy notified on December 26 targets deep discounts being offered by large online marketplaces as well as tightening up the noose on ecommerce marketplaces enjoying exclusive vendor-partners ecommerce players. The circular is set to come into effect from February 1, 2019.
Global ecommerce players Amazon and Flipkart are expected to be the most affected by the changes as both operate as online marketplaces partnering with large online vendors such as Cloud Retail, Appario and WS Retail
These companies may now be preparing to seek an extension of the February 1 deadline to comply with recent changes in the FDI rules for ecommerce as it will entail overhauling their business model.
The report also suggested that the companies will be studying the changes and may need to bring about huge operational changes and one month won’t be enough for them.
Ecommerce players have been concerned as they control inventory directly or indirectly, and the changes will prohibit such control by marketplaces on the vendors or sellers.
The companies purchase goods in bulk at cheap rates from manufacturers through their wholesale entities — Amazon Wholesale and Flipkart India Pvt Ltd — and sell them on the marketplaces through preferred sellers.
The new draft ecommerce policy is also only a few weeks away, and at such a point the changes in FDI policy for ecommerce coupled with the policy may slow down the exponential growth of ecommerce marketplaces in India.
