At first glance, the amendments announced by GoI on December 26 on regulations for e-commerce retailers appear rather drastic. But is the policy really new? Or is it simply a case of enforcing strictly the guidelines that had earlier been put in place?
The 2017 Foreign Direct Investment (FDI) Policy Circular clearly stated that100% FDI under an automatic route is permitted only in the ecommerce marketplace model, and not in the inventory-based one. Now, the soundness of this policy isn't the point here. What is, is that given that FDI is allowed only in the marketplace model, why are the 'new' guidelines restricting marketplace players from selling their own inventory so shocking? Answer: even though they call themselves the 'marketplace', many of the big online retailers are actually dependent on inventory-based sales for a sizeable part of their businesses.
As per the 2017 policy, the marketplace-based model refers to the provision of an IT platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller. The policy specified that an e-commerce entity providing a marketplace will not exercise ownership over the goods to be sold, and such ownership over the inventory would render the business into an inventorybased model. Further, the sales value for one vendor, or their group companies, was restricted to 25% of sales value a year.
Though this policy did raise concerns, there was less hue and cry than expected, even though a very critical part of the functioning of these platforms was being upended. As it turned out, companies like Amazon and Flipkart found a way around these restrictions by setting up multiple entities through which sales on their platform could be routed. For quite some time, this practice was ignored by the authorities. But now, for reasons that may have to do with the offline retailer and trader lobby and the upcoming elections, GoI has decided not to turn a blind eye any more.
saving score / loading statistics ...