FDI policy change: e-commerce companies in India push in different directions

March 25, 2021 ,

More than 20 e-commerce companies that operate in India, including biggies like Amazon, Reliance, Flipkart, Tata met the officials of the Department for Promotion of Industry and Internal Trade (DPIIT) yesterday to discuss the foreign direct investment (FDI) policy in the sector. The much-expected meeting, as it happened, kind of hit a dead-end as the various companies pushed for various agendas.

Significantly, India's homegrown companies like Reliance, Tata, Snapdeal and others pushed for stricter implementation of FDI policy, citing violation of the current one. 

On the other hand, Amazon India and Walmart-owned Flipkart wanted some stability in rules, and asked the government to avoid making further changes to the existing FDI policy. 

The virtual meeting was chaired by DPIIT secretary Guruprasad Mohapatra.

What the homegrown firms want?

Indian biggies like Reliance Retail, Snapdeal and Tata Cliq batted for clearer and broader definition of group companies to curb misuse. They felt that there were some loopholes in existing FDI policy and were exploited by some entities, especially with regard to owning inventory.

Existing FDI rules prohibit e-commerce marketplaces from ownership or control over the inventory of sellers on its platform.

E-commerce firms are not allowed to directly or indirectly influence the selling price of goods or services, and are required to offer a level-playing field to all vendors.

Capital dumping and manufacturing of own brands but sale via third parties by some e-commerce players was a major bone of contention.

There was a demand for level playing field by coming down on deep discounting. 

The need for transparency through audits was also stressed.

What the foreign-owned companies sought?

The foreign e-commerce firms --- basically, Amazon and Walmart-owned Flipkart --- requested some continuity in rules and did not want any more  tweaks to the existing FDI policy.

They felt any unpredictability in policy will affect investments as well as jobs in the segment.

An Amazon representative was quoted as saying: “We reiterated our strong, long-term commitment to India as we continue to onboard hundreds of thousands of MSMEs, building infrastructure and technology to empower and scale these local businesses. The FDI policy needs to be stable and predictable for investor confidence as any disruption in business will impact millions of livelihoods and jobs, have negative consequences on downstream suppliers and service providers including MSMEs, startups and offline stores which have barely recovered from the setback of Covid-19.”

A Flipkart official reportedly said: "There are already enough enforcement mechanisms to tackle violations in FDI laws and no further changes were needed."

Where is this headed?

Aside from Reliance, Tata, Amazon, Snapdeal and Flipkart, representatives of Paytm Mall, Swiggy, Zomato, Urban Ladder, Pepperfry, Urban Company, Grofers, BigBasket and Shopclues, among others, were present at the meeting.

The government has asked for written submissions from the companies in the next one week.

The Indian government is under pressure from offline traders (and its is a powerful lobby) who allege that e-commerce players have violated the Foreign Exchange Management Act and FDI rules. 

But the government has to be careful here as the general perception is that it is leaning towards Indian companies when framing rules.

World Bank's recent World Development Report suggested that India’s e-commerce rules may be biased towards local firms, failing to provide a level playing field to foreign e-commerce platforms.



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