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In News:

  • The Commerce and Industry ministry is not in favour of extending the deadline of February 1 for implementing the revised guidelines for e-commerce companies having foreign direct investment.

Explained:

  • On December 26, 2018, the government tightened norms for e-commerce firms and barred online retailers like Flipkart and Amazon from selling products of the companies in which they have stakes.
  • The government also prohibited e-commerce companies from entering into an agreement for exclusive sale of products.
  • As per the revised guidelines, a vendor cannot procure more than 25% of products from group companies of the same marketplace where they intend to sell them.
  • Both Amazon and Walmart-owned Flipkart had sought extension of the February 1 deadline for complying with the revised norms, stating that they needed more time to understand the details of the framework.
  • The ministry has received representations from Amazon and Flipkart for more time. Internal discussions are on. But the ministry is not in favour of extending the deadline

Background on Rules:

  • FDI is not permitted in inventory-based model of e-commerce. 100% FDI under automatic route is permitted in marketplace model of e-commerce

What Is Marketplace E- Commerce Model?

  • The inventory-based model of e-commerce is when the inventory of goods and services is owned by the e-commerce entity and sold to consumers directly.
  • The marketplace model is when an e-commerce company simply provides an information technology platform in order to act as a facilitator between the buyer and the seller.
  • E-commerce entity providing a marketplace will not exercise ownership or control over goods purported to be sold. Such an ownership or control over the inventory will render the business into inventory-based model.

What the notification says?

  • In addition to the restrictions prescribed under the existing FDI policy, the DIPP clarification now states that inventoryof a vendor will be deemed to be controlled by e-commerce marketplace entity if more than 25% of purchases of such vendor are from the marketplace entity or its group companies
  • An entity with equity stake owned by an e-commerce marketplace entity or its group companies, or having control on its inventory by e-commerce marketplace entity or its group companies, will not be permitted to sell its products on the platform run by such marketplace entity.
  • It also said an e-commerce marketplace will not force any seller to sell any product exclusively on its platform

Accountability:

E-commerce marketplace entity will be required to furnish a certificate along with a report of statutory auditor to Reserve Bank of India, confirming compliance of the guidelines, by September 30 every year for the preceding financial year.

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