National e-commerce policy after a year, no change in FDI guidelines

Piyush Goyal, commerce and industry minister
The wait for an e-commerce policy will get much longer now with the government setting a 12-month deadline for it. After an e-commerce policy draft in February had drawn industry flak, the government was in the process of reviewing it. While a comprehensive policy is expected around the middle of 2020, the government has made clear that there would be no changes in the foreign direct investment (FDI) rules in the sector. 

The government decision to stay firm on the e-commerce FDI rules coincides with US Secretary of State Mike Pompeo’s visit to India before he heads for the G20 meet in Japan. E-commerce rules have been an area of concern for the US ever since India came out with its policy on data localisation. The draft e-commerce policy, which too centred around data localisation, added to the industry worry. In addition, the e-commerce rulebook got tweaked for companies with foreign investment, forcing players such as Amazon, Walmart and others to rework their business strategies in the country. The government, however, maintained that it only came out with clarifications on FDI rules and that no change was made.     

Commerce and Industry Minister Piyush Goyal held a marathon meeting on Monday with online players including Amazon, Etsy India, Snapdeal, Paytm, eBay, Makemytrip and Swiggy. They were told that an institutional framework would be put in place to deliver the policy within one year, a senior official said. 

It’s learnt that the message at the meeting was that the industry should not expect changes in the FDI rules.

Current rules allow up to 100 per cent FDI under automatic route in the marketplace model of e-commerce, but bar any investments in the inventory based model of e-commerce. In December 2018, the government had tightened the FDI conditions in the online space, stating that an e-commerce platform with foreign investment cannot exercise ownership or control over the inventory sold on its platform.

Subsequently, a draft of the e-commerce policy, that went public in February, faced heat from both companies and civil society alike. While Indian businesses argued the interest of domestic businesses were not protected sufficiently, consumer groups said it was heavily tilted in favour of players such as Ola, MakeMytrip and Paytm (all funded by marquee foreign investors), rather than consumers and small businesses.

For making an e-commerce policy, yet another committee, the third so far, has officially been formed now. Under the authority of the Department for Promotion of Industry and Internal Trade (DPIIT), it will be headed by the additional secretary, with representatives from the commerce department and ministries of MSME and Consumers Affairs besides legal experts as members.

The committee will provide necessary clarifications on issues related to FDI in e-commerce, it is learnt. India’s e-commerce industry is expected to reach $125-150 billion by FY20 on increased internet penetration, according to estimates by Care Ratings.

On FDI rules

"We are not that concerned about FDI in e-commerce issues as we are now compliant with all the norms. We have anyway changed our business structures and now changing back to the original form would be counter productive. Right now our main concern is a balanced ecommerce policy," said a senior executive of a major digital commerce firm present during the Monday meet.

Among other things, the government had last year also restricted flash sales and deep discounting for e-commerce companies with foreign investment. There was a clampdown on the sale of private labels on such platforms as well. "The government has told the companies that Press Note 2 of 2018 on FDI in e-commerce was clarificatory in nature and no changes have been made in the existing law," a senior official said.

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