FDI Ecommerce Circular: Feb 1 Deadline May Be Extended By Two Months

It seems like the government may finally be paying heed to requests by Flipkart and Amazon to defer the February 1 deadline for implementation of the changes in the foreign direct investment (FDI) policy for ecommerce. It is reportedly planning a two-month extension of the deadline.

On December 26, the government notified changes in the FDI policy for ecommerce, prohibiting large online marketplaces from owning equity in any of their vendors or having control over inventories sold on their platforms. The circular is set to come into effect from February 1, 2019.

The extension of the deadline comes just ahead of the upcoming general election and things may alter course if there are changes in the central government.

Amazon had sought a deferment of four months while Flipkart is said to have proposed a six-month extension. The two companies have also written to the Department of Industrial Policy and Promotion (DIPP) on the matter. Amazon reportedly told the DIPP that it would be difficult for the company to comply with the rules by February 1 as it involves extensive overhauling of its business model and systems.

The two ecommerce companies have been offering huge discounts to overhaul their large inventories as they both operate as online marketplaces partnering with large online vendors such as Cloud Retail, Appario and WS Retail.

The ecommerce duo has been offering huge discounts to overhaul their large stock inventories as under the new rules they are not allowed to partner with their large online vendors such as Cloud Retail, Appario, and WS Retail.

Amazon and Flipkart purchase goods in bulk at cheap rates from manufacturers through their wholesale entities — Amazon Wholesale and Flipkart India Pvt Ltd respectively — and sell them on their marketplaces through preferred sellers. And therefore, stock clean up becomes essential for them as they come closer to the deadline for implementation of the new FDI norms.

However, an extension of the deadline may not go down well with the Confederation of All India Traders (CAIT), a traders body representing online sellers, which had objected to any such extension of the deadline.

The organisation had threatened a nationwide agitation if any changes are made in the FDI policy to support ecommerce marketplaces.

Even as the ecommerce players try to change their business models to conform to the new FDI ecommerce norms, the extension in the deadline may render the reforms ineffective if they fall into an endless cycle of extensions and stays.

[The development was reported by ET.]