{"id":14401,"date":"2019-03-06T18:00:37","date_gmt":"2019-03-06T12:30:37","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=14401"},"modified":"2019-12-28T18:24:37","modified_gmt":"2019-12-28T12:54:37","slug":"fdi-guidelines","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/fdi-guidelines\/","title":{"rendered":"IVCA Voices Support for Start-ups, Demands Roll Back of New FDI Rules\ufeff Online"},"content":{"rendered":"


<\/strong><\/p>\n\n\n\n

On December 26, 2018, the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, Government of India (“DIPP<\/strong>“) issued press note<\/a> 2(2018 Series) known as “PN 2(2018)<\/strong> revising the norms applicable for foreign direct investment<\/a> (“FDI<\/strong>“) in e-commerce sector in India. This PN 2(2018) is applicable and comes into force from February 1, 2019. The earlier PN 3 was issued in 2016 for guiding e-commerce trade in India. <\/p>\n\n\n\n

What was the need for revising such FDI Guidelines? <\/strong><\/h2>\n\n\n\n

It was observed by the Government that the existing\nFDI guidelines are not being implemented in spirit by the leading e-commerce\ncompanies in India. The Government has viewed this from the two e-commerce\nmodels existing today and they are like Marketplace and inventory model.<\/p>\n\n\n\n

Currently, India permits 100 percent of FDI inflow in the\nmarketplace model of e-commerce business which is something like tech platform\nconnecting buyer and seller.
\nNewly revised guidelines of FDI do not\npermit inventory-based models of e-commerce as under operation in the USA and other countries. Under this model, they directly sell to the ultimate\nbuyer. <\/p>\n\n\n\n

The purpose of such revised guidelines\nis to protect India’s vast unorganized\nretail sector which would suffer a loss and vanish from the business if\nguidelines are not revised. <\/p>\n\n\n\n

As per the new guidelines the Amazon and Flipkart<\/a> can only work on the marketplace model in India. <\/p>\n\n\n\n

The Government has observed that local businessmen, especially retailers, are suffering a lot because of such free e-commerce business operations carried out by the world’s giant players in the Indian market<\/a>. The recent changes in such guidelines are due to continued protests and objections raised from the brick and mortar retailers (small traders) and retailer associations stating predatory pricing, malpractices and heavy discounts offered by e-commerce entities with foreign investments to drive out the retailers in the Indian market. <\/p>\n\n\n\n

The e-commerce entities are having the advantage of such guidelines to capture maximum share in the market that is harmful to the retailers. Retailers’ existence was at the risk and found difficult to survive in the market against such foreign entities. <\/p>\n\n\n\n

Current regulations state that e-commerce firms cannot\nexercise ownership over the goods and merchandise sold on their online\nmarketplace. Both the big players developed a complicated structure to follow\nthis norm and at the same time to control the inventory. It is observed that\nboth big companies have been violating the FDI norm in spirit and offer huge\ndiscounts and incentives to consumers to get the business. This is the wrong practice of business adopted by these\ncompanies.<\/p>\n\n\n\n

The revised guidelines state that a seller or a vendor\npurchasing more than 25 percent of inventory from the marketplace will be deemed be controlled by the marketplace. Thus\nit puts a restriction on the operations\nof seller and vendor to control the wrong\npractice of bulk purchases from a wholesaler.<\/p>\n\n\n\n

The Department of Industrial Policy and Promotion (DIPP)<\/strong> released Press Note No. 2 of 2018 on 26 December 2018, putting certain additional conditions for the e-commerce sector, under the Consolidated Foreign Direct Investment Policy of India (FDI Policy). This Press Note modifies paragraph 5. 2. 15. 2 (E-commerce activities) of the FDI Policy, and this will be effective from 1 February 2019 describing some of its policy objectives and responding to criticism of media for this. <\/p>\n\n\n\n

The FDI Policy, as it stood prior to these amendments, allowed foreign direct investments (FDI) under the automatic route in entities engaged in the marketplace model of e-commerce, and restricted FDI in entities engaged in an inventory-based model of e-commerce in India. Press Note 2 of 2018 came out with a number of key changes to better regulate FDI in the e-commerce sector. <\/p>\n\n\n\n

This has certain new regulations relating to inventory control, affiliated sellers, and exclusive arrangements in the e-commerce business. According to the PN2 Clarification, it is because certain e-commerce marketplaces with FDI were indirectly engaging in inventory-based e-commerce, and influencing the price of products (which is also prohibited) which in turn harms the business of the retailers. Thus, in order to stop this wrong practice and violation of FDI guidelines, the PN2 Clarifications were introduced for better implementation and adherence to existing FDI regulations by e-commerce entities. <\/p>\n\n\n\n

These revised guidelines are framed to furnish a level playing field to brick and mortar retailers by checking deep discounts and other incentives offered by e-commerce players.<\/p>\n\n\n\n

What are the basic revised FDI guidelines?<\/strong><\/h2>\n\n\n\n

As Press Note 3\nrestricted one seller from selling more than 25% of the total products on the\nmarketplace on account of creating a level playing field, the Press Note 2 puts certain restrictions on:<\/p>\n\n\n\n