No change warranted in FDI norms, Amazon, Flipkart tell DPIIT even as other e-tailers call for penalties for violators

While Amazon and Flipkart expressed their concerns with regards to a proposed change in the existing rules, companies such as Tata Cliq, Snapdeal, BigBasket and Grofers were of the view that while the policy was fine, a proper implementation was lacking, according to sources who attended the meeting.

March 26, 2021 / 10:16 AM IST

Yet again a clear divide was visible among the companies in the e-commerce segment at the meeting to discuss a potential clarity in the existing foreign direct investment norms for the e-tailing firms organised by the Ministry of Commerce and Industry.

While Amazon and Flipkart expressed their concerns with regards to a proposed change in the existing rules, companies such as Tata Cliq, Snapdeal, BigBasket and Grofers were of the view that while the policy was fine, a proper implementation was lacking, according to sources who attended the meeting.

Some companies were also learnt to have proposed penalties for violations.

Flipkart on the other hand said frequent policy changes were disruptive and can also damage the image of the country. Amazon added to it by saying that a change could have devastating consequences on millions of jobs, e-commerce suppliers adding that it was fully compliant with the existing rules.

The point of discussion was the existing rules for marketplaces that have FDI in India. As per Press Note 2, such marketplaces are barred from holding inventory and directly or indirectly influencing the price of goods sold on their platforms.

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However despite this rule, multiple companies have been found circumventing the law in India.

This is also not the first time that the government is trying to come up with a clarification on the existing norm. Press Note 2 was devised in 2018 just to bring clarity on the then existing Press Note 3.

However soon after, companies rejigged their ownership structures to follow the rules on papers while still not following law of the land in spirit.

In February 2019 for instance, Catamaran Ventures raised its stake in Cloudtail's parent company Prione Business Services. The move reduced Amazon Asia's stake in Cloudtail to 24 percent from the earlier 49 percent, with Catamaran Ventures’ stake rising to 76 percent from 51 percent earlier. Following this, Cloudtail ceased to be an Amazon group company, making it compliant with the rules.

Flipkart recently told its preferred sellers to procure the products directly from suppliers as against the existing model where the wholesale unit of Flipkart would sell the products to them.

"We believe some of the law of the land is fairly clear and all it needs is an implementation in letter and spirit. If there is FDI in a marketplace then you cannot hold inventory," founder of one of the companies who attended the meeting told Moneycontrol requesting anonymity. "As a marketplace it has to allow for sellers to be fully independent.  All of us understand what the spirit of the law is and no company should be exploiting the loophole to their advantage. The government should do whatever is needed to bring the much needed clarity," he added.

Another founder present in the meeting said that there was no back and forth or discussion. The participants were given three minutes each to speak and now they have been asked to send written submissions in one week.

This happens at a time when the government is also parallelly working on the draft e-commerce policy. According to a leaked copy of the draft seen by Moneycontrol, the policy says online marketplaces cannot be partial to any of their sellers and they cannot use algorithms to the advantage of certain vendors.

Also in attendance in today's meeting were companies such as Swiggy, Zomato, Reliance Jio, Ola, Uber, Netmeds, 1MG, Urban Ladder, Urban Clap and MakeMyTrip, among others.

“We welcome the DPIIT initiative for consultations with industry and the opportunity for a constructive and continuing dialogue with the government. 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,"  an Amazon spokesperson said.

"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," the spokesperson added.
Priyanka Sahay
first published: Mar 25, 2021 04:38 pm

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