1 August, 2016
The Department of Industrial Policy and Promotion, Government of India (DIPP), has issued the consolidated FDI Policy 2016 (FDI Policy) on Jun 7, 2016. The new consolidated FDI Policy is much more convenient and clear to understand in its form and substance. The policy and procedures are clear and well defined.
As regard companies engaged in E-commerce business, FDI up to 100% is permitted under automatic route. The FDI Policy also includes online marketplaces within the category of e-commerce. A Marketplace based model of e-commerce means providing of an information technology platform by an e-commerce entity on a digital & electronic network to act as a facilitator between buyer and seller.
To safeguard the interests of small traders who would want to sell their products through these e- commerce/ online marketplace entities, the FDI Policy provides that an e-commerce/ online marketplace company having FDI should not permit more than 25% of the sales affected through its marketplace from one vendor or their group companies. But the FDI Policy has been silent on the on the mechanism for monitoring the e-commerce/online marketplace companies to ensure compliance of the 25% requirement. There is no requirement for reporting of details like total sales effected through their marketplace, details of sales effected through each vendor listed on this marketplace, ownership structure of the vendors registered on their market place etc. to any government authority to ensure compliance of this requirement.
There have been various representations made by the associations representing small trades on this issue as there have been claims that Amazon and Flipkart (who certainly have FDI) have been using certain entities (group companies or otherwise) like Cloudtail and WS Retail to effect majority of sales through their e-commerce marketplace. In the absence of any well-defined policy/procedure to monitor the sales being effected through the e-commerce/ marketplace entities (having FDI) and currently there being no requirement on these entities to disclose any relevant information to any authority, the said condition, which is to protect the interests of small trades, is practically redundant.
For further information, please contact:
Ravi Singhania, Partner, Singhania & Partners
ravi@singhania.in
