Stringent Changes In Ecommerce FDI Policy Incoming, Piyush Goyal

SUMMARY

Piyush Goyal met a delegation of CAIT on January 21, and assured them of stringent actions

The new policy may prohibit foreign ecommerce players from directly or indirectly owning equity stake in sellers

The development coincides with CCI’s approval for Flipkart’s INR 1,500 Cr investment in Aditya Biral Fashion

Commerce and industries minister Piyush Goyal met a delegation of traders association on Thursday (January 21) and assured them that stringent changes will be made to India’s foreign investment (FDI) policy for the ecommerce sector, which are expected to heavily impact Flipkart and Amazon India.

The traders association CAIT, in a statement issued on Friday, said that the Goyal told them that a “strenuous exercise” was underway to issue new foreign investment rules, and the government will address the alleged violations of current rules by the ecommerce players as well.

Earlier this week, ministry of commerce official Yogesh Baweja confirmed that India is looking to revise its FDI policy after intense pressure from seller lobby groups. The ministry has been in discussions with various stakeholders for over a month, and Amazon India is one of the companies that has made its representation to the government.

The government of India had last revisited India’s FDI policies in 2018, and rolled out Press Note 2 which notified the FDI rule changes. It barred foreign ecommerce players from selling products from sellers in which the companies have an equity stake. In response, ecommerce companies such as Amazon India and Walmart-owned Flipkart restructured their holdings in these sellers through other subsidiaries, thereby only indirectly owning stake.

Now, the latest round of changes may force the companies to move away from the restructured holding patterns that had been instituted after the 2018 changes.

The government’s decision to look into the FDI policies coincides with Competition Commission of India’s (CCI) approval of Flipkart’s INR 1,500 Cr investment in Aditya Birla Fashion and Retail (ABFRL), which owns brands like Pantaloons, Allen Solly and Peter England. Even though the deal technically flouts the FDI norms.

The CAIT had also written to Goyal, flagging off the deal when it was first announced in November. The Department of Promotions of Industry and Internal Trade (DPIIT), then, forwarded the four complaints by the association to the Reserve Bank of India (RBI) and Enforcement Directorate to take “necessary actions”.