Last night, the government announced that it wasn't extending the deadline for ecommerce companies to comply with the new FDI guidelines. The move will be a setback for the two biggest players - Amazon India and Flipkart.
The Department of Industrial Policy and Promotion (DIPP) has rejected the request from ecommerce majors Amazon India and Walmart-owned Flipkart to extend the deadline to comply with the norms laid out in the latest ecommerce policy. In a press note, the government body has said,
"The Department had received some representations to extend the deadline of February 1, 2019, to comply with the conditions contained in the Press Note 2 of 2018 series on FDI Policy in e-Commerce issued by the Department. After due consideration, it has been decided, with the approval of the competent authority, not to extend the above deadline."
Over the last few weeks, there has been much talk around the foreign direct investment (FDI) policy for ecommerce companies, which was announced a few weeks ago and comes into effect today.
While ecommerce giants have been up in arms, a number of smaller companies have welcomed it.
According to the new policy, FDI in ecommerce is allowed only in the B2B space, and not B2C. Further, it bars ecommerce companies from selling products of companies in which they hold a stake. The Commerce and Industry Ministry has also prohibited companies from entering into agreements for the exclusive sale of products.
The policy has evoked sharp reactions from the two big players in the market, Amazon India and Walmart-owned Flipkart, who have sought an extension on the deadline to comply with the norms. Both companies said their sellers, mostly small and medium enterprises (SMEs), would be severely impacted. That’s not all. Media reports say the US government too has asked India to reconsider the policy. (Amazon and Walmart are both US-based companies.)
Even before the government declined to extend the deadline, for the implementation of the FDI policy, sources said sellers had been receiving purchase orders as usual from the two players, and were only notified that there may be a minor disruption for a few days.
Rule of law
Online marketplaces such as ShopClues and Snapdeal have, over the past few days, expressed their support for the FDI policy and have urged the government not to extend the deadline for its implementation. Both these companies follow the pure marketplace model, which enables sellers to only sell on their online platform and the platforms themselves do not hold any inventory.
Sanjay Sethi, CEO and Co-founder of ShopClues, told YourStory that until GST came into force almost two years ago, ShopClues did not even have to register for sales tax as they could not, and did not, actually sell anything. In other words, other than facilitating the sale for their sellers, the role of ShopClues was minimal.
Sanjay said in a statement, “DIPP's notification declining the extension of Feb 1st deadline it had given to the violators of the FDI norms in ecommerce is very welcome. It is a win for the MSME community in the country, moving them one step closer to a level playing field. It also sends strong message to the violators that legal jugglery, exploiting loops holes and in general disregard for the law will have to stop now. Today, millions of MSMEs can breathe a sigh of relief.”
Prohibiting FDI in online marketplaces aims to create a level playing field for online sellers, and marketplaces are not allowed to hold any stake in the sellers on their platform to avoid prices being influenced unfairly.