National policy soon to keep ecommerce companies like Amazon, Flipkart in check

India will broaden the definition of ecommerce to include any buying, selling, marketing, distribution and delivery of goods and services through electronic means and come out with a single legislation for ecommerce.

India proposes to create a special group to keep tabs on any violation of its foreign investment policy by online retail platforms such as Amazon, Flipkart and Myntra even as it contemplates widening the definition of ecommerce under the framework.

The separate wing comprising officials from the industry department and the Enforcement Directorate will handle any violations, strengthening the implementation and enforcement of the guidelines. The wing will be a temporary solution to address misuse of the policy while the government prepares a national policy on ecommerce to improve regulation of the sector.

India will broaden the definition of ecommerce to include any buying, selling, marketing, distribution and delivery of goods and services through electronic means and come out with a single legislation for ecommerce, an inter-ministerial group decided on Friday.

“The separate wing will be a transient measure to enforce the existing policy and handle any grievance related to the implementation of Press Note 3,” said an official present at the meeting. Press Note 3 details the guidelines for foreign investment in ecommerce.

AIMED AT REMOVING AMBIGUITY
The changes are aimed at removing ambiguity around the guidelines, which retailers allege have helped marketplace operators work around restrictions defined in the businessto-consumer ecommerce policy. Amazon India and Flipkart, which is being acquired by Walmart for $16 billion, have denied any wrongdoing and said they have complied with laws.

Brick-and-mortar retailers have alleged that ecommerce companies violate the regulations by influencing prices on their platforms and illegally funding abnormal discounts. Traditional retailers have also said that there is no level playing field for them visà-vis ecommerce companies that have access to unhindered foreign capital. Complaints have also been filed by online vendors on these platforms and mobile phone sellers.

India allows 100% FDI in the marketplace model and disallows FDI in the inventory-based model. Marketplace operators cannot hold inventory and sell products on their platform – they can only facilitate the process for other vendors. Online marketplace operators are not allowed to directly or indirectly influence prices of products sold on their platforms. An ecommerce entity cannot allow more than 25% of the sales transacted on its marketplace from one vendor or its group companies.

Amazon and foreign-funded companies in India including Flipkart, Shopclues and Snapdeal operate models under which 100% foreign investment is allowed only to provide platforms to other retailers and vendors to conduct business. A sub-group of the inter-ministerial group has recommended that marketplace operators be allowed limited inventory, ET had reported on Friday. Allowing FDI in the inventory model of ecommerce was not discussed at the meeting, according to the official.

“We discussed the misuse of Press Note 3 and how that can be prevented. Stronger implementation and enforcement of the press note was taken up. All stakeholders were on board for a single legislation for ecommerce,” said another official present at the meeting. The group also decided to set up a regulator to deal with broader aspects such as FDI implementation issues, full disclosure of intent, use and purpose of data collection by ecommerce companies, consumer protection, central registry and promotion of domestic companies.

FDI was among the 22 issues that were discussed by senior officers of the ministries of MSME, consumer affairs, electronics and information technology, and corporate affairs and the Department of Telecommunications, Department of Commerce, Competition Commission of India and the Directorate General of Foreign Trade. “The suggestions emerging from the task force meeting held today will be submitted to the think tank for consideration,” the commerce and industry ministry said in a statement. The think tank is led by commerce and industry minister Suresh Prabhu.

A cabinet note will be prepared for a decision by the government. “The confusing elements would be resolved and a definition of ecommerce, at par with the international definition in global intergovernmental organisations, would be part of the cabinet note,” a third official told ET.

The Department of Industrial Policy and Promotion, the agency that formulates foreign direct investment policy and promotes, approves and facilitates FDI, has been asked to prepare a law on domain name registration, while the ministry of electronics and information technology has been asked to fasttrack a national encryption policy.

The cabinet note will also look at the scope of imposition of customs duty on digital products, inclusion of ecommerce in the government’s integrated logistics plan, protection of critical source code, mandatory registration for domestic and foreign ecommerce firms and preserving net neutrality in the proposed ecommerce law.