Strange deal: on new e-commerce police
Mains Paper 1: Economy
Prelims level: e-commerce
Mains level: Economic growth, development
- The Centre’s curiously timed attempt to ‘clarify’ foreign direct
investment norms for e-commerce players could end up scuttling investor
interest in the sector that has attracted large foreign players and
generated thousands of jobs.
- The fresh restrictions and the clarifications on certain
operational aspects could reinforce investor complaints about India being
unpredictable in terms of policies.
- In March 2016, foreign investment up to 100% was allowed under the
automatic route for e-com firms engaged in business-to-business transactions
using the marketplace model — one where a firm sets up an enabling IT
platform to facilitate trade between sellers and buyers.
The new rules for e-com player
- However, FDI was not allowed where the e-com player owned the
inventory of goods to be sold, or for business-to-consumer purposes, barring
a few exceptions.
- The rules have been altered for players like Amazon or Flipkart
(majority-owned by Walmart) that have made significant investments in India.
- The policy, to kick in from February 1, 2019, could require a
major overhaul in the business model and shareholding structures of such
- In earlier a single vendor or its group firms couldn’t account for
over 25% of sales in a marketplace; now the rules bar sales by any entities
where the e-com firm has an equity stake.
- A vendor’s inventory will be deemed to be controlled by the e-com
player if more than 25% of its purchases are from the latter or related
- It’s not clear how this change will help meet the principle
enunciated in the policy note fairness and the creation of a
non-discriminatory, level playing field.
The latest buzz around e-commerce
- Separately, any specialised back-end support for some sellers must
now be extended to all vendors, while discounts, cash-backs and preferential
subscription services have been made far trickier to implement.
- An e-commerce marketplace entity will not mandate any seller to
offer a product exclusively on its platform under the new rules.
- But this doesn’t explain what to do when a seller voluntarily opts
to sell exclusively on one e-commerce portal over another.
- The government is clearly keen to quell the long-brewing disquiet
among offline retailers over big discount sales and the surge in e-commerce.
- It could have waited for the recommendations of a national
e-commerce policy task force set up this April.
- That task force could trigger more policy shifts. India’s retail
FDI policy remains muddled with the debate now focussing on online vs
offline trade as opposed to big vs small, or a single brand vs multi-brand
retail FDI regime.
- Globally, India has been taking on protectionism, and this month
the Finance Minister said free trade is essential so consumers get the best
- The same consumer focus and non-protectionist tenets must be
applied for internal trade.
Q.1) With reference to the Agricultural and Processed Food Products Export
Development Authority (APEDA), consider the following statements:
1. It is a statutory body.
2. It is mandated with the responsibility for promotion and development of the
export of various agro products.
3. It works under the Ministry of Commerce & Industry.
Which of the statements given above are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Q.1) What are the pros and cons of the new e-commerce policy?