The Department of Industrial Policy and Promotion, thru Press Note no. 2 of 2018, has sent out giant ‘clarifications’ on the law relating to Foreign Direct Investment (FDI) in the e-commerce area.
To outline, there are models of e-trade activities viz:
Inventory-based totally version-where stock of goods and offerings is owned by way of the e-commerce entity and is offered to the clients immediately. FDI isn’t always accepted in such an inventory-based model of e-trade.
A marketplace based version-where the e-trade entity presents the handiest facts generation platform on a virtual and digital community to behave as a facilitator among customers and vendors. 100% FDI is allowed below automatic route beneath this version, difficulty to sure situations.
Such marketplace e-commerce entities could interact most effectively in Business to Business (B2B) e-commerce and not in Business to Consumer (B2C) e-commerce. Such an entity would be accepted to enter into transactions with sellers registered on its platform on a B2B basis.
These e-trade entities can render assist services to dealers like warehousing, logistics, order fulfillment, name center, fee collection, and such related offerings. It turned into furnished that if the e-commerce entity sports possession or manipulate over the inventory sought to be sold, it would likely have seemed like an ‘inventory-primarily based model.’
It is now clarified that if more than 25% of vendor purchases are from the market entity or its group corporations, the inventory may be deemed to be controlled using the e-trade entity. In such situations, the model could appear as a ‘stock-based model.’
There was a provision that an e-commerce entity will now not allow greater than 25% of the sale cost effected via its platform, in an economic year, from one vendor or its group organizations.
This restriction has been rightfully removed.
There becomes no restriction on equity participation with the aid of the e-commerce entity into the entity selling items and services. It has now been furnished that any entity having any equity participation through the e-trade market area entity or its organization organizations will now not be accredited to sell its merchandise at the platform run by such market entity.
There became provision that e-trade market entities will not at once or circuitously affect the sale charge of goods and offerings and shall hold a level playing field.
It has now been clarified and elaborated that Services furnished via e-trade entity or its organization corporations to the dealers on its platform have to be at palms’ length and in a fair and non-discriminatory manner. Provision of offerings to any dealer on such phrases which aren’t made to be had to every other vendor on similar occasions will be deemed as unfair and non-discriminatory.
In addition, it has been clarified that an e-commerce entity would not mandate any seller to promote any product solely on its platform simplest.
The above changes are relevant to impact from 1st February 2019. These are tremendous clarifications/changes for the agencies engaged in imparting e-commerce platforms and having Foreign fairness participation. These organizations will need to take a close look at their present-day enterprise version to make certain that they preserve to stay within the parameters of regulations framed under this coverage.