Deadline for new FDI policy in ecommerce may be deferred : 25-01-2019

The government is considering extending the deadline of February 1 by when recently announced changes in the foreign direct investment policy for ecommerce are to take effect, said people with knowledge of the matter.

“The government is considering giving an extension, but no final decision has been taken,” said a senior official. Amazon and Walmart-owned Flipkart have sought a deferment and industry sources said the government is weighing an extension of at least two months.

Executives of Amazon and Flipkart have met senior government officials and asked for an extension and review of two key clauses

The first bars marketplaces and their group companies from having equity participation in any of their vendors and the second prohibits marketplaces and group companies from having control over inventory sold on the platforms, said the people cited above. An extension of two months, if granted, would mean the rules take effect at around the time of general election, said the people. While Amazon has sought a deferment of four months, 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) seeking a delay.

Amazon India said it will comply with all local laws, rules and regulations, but is awaiting clarification from the government on the policy changes, which were announced on December 26.

“As we seek clarity, we have written to the government requesting an extension of four months,” a spokesperson said. “With over 4 lakh sellers and hundreds of thousands of transactions happening daily on the Amazon India marketplace, we need adequate time to understand the details of the policy.”

“We are working diligently to assess all aspects of the Flipkart business in an effort to ensure full compliance with the new rules, but believe an extension is appropriate in order to ensure that all elements of the new Press Note are clarified and a smooth transition for marketplace participants occurs without any disruption for customers and small sellers,” the firm had told ETon January 15.

The clauses cited above necessitate sweeping changes to the business models of ecommerce marketplaces such as Amazon India and Flipkart. 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. The marketplace entity or its group companies cannot have control over inventory under FDI rules.

Amazon and Flipkart both control inventory directly or indirectly. They purchase goods in bulk at cheap rates from manufacturers through their wholesale entities — Amazon Wholesale and Flipkart India Pvt Ltd — and sell them on their marketplaces through preferred sellers, which are companies in which the ecommerce company or a group entity may have an equity stake. The preferred sellers account for 70-80% of the total sales of the marketplaces. Both companies are betting heavily on the Indian  market. Amazon has committed an investment of $5 billion, of which a large chunk has been put into wholesale, marketplace and payments. Walmart has paid $16 billion to take over Flipkart.

The government’s next move is being keenly watched in US trade circles, especially with US commerce secretary Wilbur Ross scheduled to visit India on February 14. The US-India Strategic Partnership Forum had termed the amendments “regressive”.

Source : Economic Times

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