FDI Policy in E-commerce

FDI Policy in E-commerce

The FDI in e-commerce guidelines issued by Department of Industrial Policy and Promotion through Press Note No. 2 dated 26th December 2018 are set to have implications on e-commerce giants like Amazon and Flipkart.

E-commerce means buying and selling of goods and services
including digital products over a digital and electronic network.

The Press Note dated December 2018, came into effect on 1st February, 2019. As per the Press Note, 100% FDI is permitted in E-commerce activities. However, the policy of 100% FDI is subject to certain limitations. The Press Note distinguishes between two kinds of e-commerce model i.e., inventory-based model and market-based model. Inventory based model is one in which the inventory is owned by e-commerce owner and is sold to the customers directly. In the market-based model, on the other hand, the e-commerce owner acts as a facilitator between the buyer and seller and merely provides an information technology platform on a digital and electrical network.

The new norms bar FDI in the Inventory-based model and even though 100% FDI is permissible in the market-based model, it is followed by certain constraints. Under the market-based model, the e-commerce entity can neither exercise any control or ownership over the inventory nor influence the prices of the goods and/or services either directly or indirectly. In case, if the e-commerce entity controls more than 25% inventory of the vendor it will be considered as an inventory-based model and no FDI will be allowed whatsoever. The abovementioned caveats come with the basis to draw parity with traditional bricks and mortar stores.

The PN 2 allows e-commerce entities to enter into only B2B transactions. These B2B transactions may be complemented with certain support services such as warehousing, logistics, call centre, payment collection, and other services. The PN 2 also places a number of other obligations on the e-commerce entity. These include a clear indication of the seller’s name and contact details, conformity with RBI guidelines for facilitation of payments, and ensure that no seller sells his goods/services on its e-commerce platform exclusively.

The intensive and strict conditions put herein may require E-commerce means buying and selling of goods and services including digital products over a digital and electronic network.

The intensive and strict conditions put herein may require E-Commerce entities to alter their holding structures and corporate setups to not fall foul of the conditions. This can be an irksome, expensive and a time-consuming process. The PN 2 also sets forth certain mandates for the seller including the warranty/guarantee of the goods sold, and post-sales, delivery of the goods and the customer satisfaction. This is also in consonance with the E-commerce consumer draft guidelines announced by Government of India which clearly defines the liabilities and obligations of Sellers in an E-Commerce set-up, including provision, prescribing for the facilitation of exchange, returns and refund process for mandatory safety and health care warnings, etc., “E-Commerce guidelines for Consumer Protection 2019

The ensure compliance, the PN 2 makes the provision for furnishing a certificate along with a Report of statutory auditor to RBI.
The issuance of PN 2 is reported to be a positive step towards greater transparency in thebusiness practices thus acting as a safeguard for the interests of the consumers.

Diya Mehta, Advocate
Associate, TvT Legal