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New Draft Policy On E-Comm To Fix Loopholes

A day after the government tightened norms for foreign direct investment (FDI) in e-commerce, highly placed sources said a new draft policy, to be announced in a few weeks, would plug some of the loopholes that still weigh in favour of major players such as Amazon and Flipkart.

“E-commerce firms still have deep discounting and predatory pricing on their platforms. Many also have subsidiaries via which they source most of the goods sold online. During the past one year, the department has received several complaints from trader bodies, retailers as well as consumer organizations. The upcoming e-commerce policy will ensure that all these things are addressed,” a senior commerce ministry official said on Thursday.

The new policy could make it difficult for a lot of e-commerce firms to operate their current business models, which many allege are distorting market dynamics. Sources in the Department of Industrial Policy and Promotion (DIPP) said the new policy, which has been on the drawing board for almost a year, would help create a level playing field for both online and offline players.

While the new FDI rules state that an online marketplace cannot sell products from a vendor in which they have a stake, they do not say anything about selling goods from a subsidiary firm of a vendor. For example, Cloudtail is a joint venture between Amazon.com and Narayan Murthy’s family office Catamaran Ventures. It could be argued that Amazon India, which operates Amazon.in, is not directly linked to Amazon.com, the US firm. Regulatory filings show the ownership of Amazon India by a web of holding companies, outside the US and India, which, at the top end of the structure, are owned by Amazon.com.

“The language of the clarification seems to suggest that such restrictions on entities which can sell goods on the online platform extend only to such companies where there is direct equity participation of e-commerce marketplace or its group companies,” said Atul Pandey, partner at Khaitan & Co.

“However, it does not extend to step-down subsidiaries of such companies having direct equity participation, who may sell their products on the online platform. However, only time will tell if the DIPP will support such a view,” Atul Pandey added.

Sources in the commerce ministry said the standing committee of secretaries working on the draft e-commerce policy is planning to address this issue.

“The initial draft had proposed a sunset clause for predatory pricing policies that include ‘zero payment offers’, ‘flash sales’ and ‘unlimited offers’. It had also sought to define these practices and set fixed norms for each. The government may move forward on these,” a DIPP official said.

Complaints may continue to pile up

On Wednesday, the new FDI guidelines specifically asked e-commerce companies to furnish a certificate along with a report of statutory auditor to the Reserve Bank of India (RBI), confirming compliance of the guidelines, by September 30 of every year for the preceding financial year.

However, it now appears that power to initiate proceedings against firms will remain with the Enforcement Directorate (ED). Senior officials denied the allegation that the high number of cases lodged with the ED had anything to do with the government bringing out Wednesday’s guidelines.

Long-term implications

Industry said it needed to be kept in the loop on the matter. “Government policy changes will have long-term implications for the evolution of the promising sector and the whole ecosystem. It is important that a broad market-driven framework through right consultative process be put in place in order to drive the industry forward,” Flipkart said.― Business Standard

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