01 January 0001

Revised policy on FDI in E-Commerce in India

On December 26, 2018, the Government of India, issued a press note (“Press Note”) to clarify the existing foreign direct investment (FDI) policy on e-commerce sector. The provisions of the Press Note will be effective from February 01, 2019. We have summarized the amendments introduced by the Press Note on the existing FDI policy on e-commerce along with the impacts of such amendments on the e-commerce entities in India.

Earlier Position Revised Position Impact
An e-commerce entity was not allowed to permit more than 25 percent of the sales value on financial year affected through its marketplace from one vendor or their group companies. Vendor would be deemed to be controlled by e-commerce marketplace entity if more than 25 percent of purchases of such vendor are from such e-commerce marketplace entity or its group companies. Vendors would be required to analyze their total purchases to ensure that the purchases from one market place entity or its group companies do not exceed 25% of purchases of such vendor.
No provision Entities: (i) in which the e-commerce entity or its group companies have equity participation; or (ii) whose inventory is controlled by the e-commerce entity or its group companies. will not be allowed to sell its products on the platform of such market place entity. Restriction on vendor entities where e-commerce entity or its group companies have equity participation or inventory control.
No provision Marketplace entity cannot mandate any seller to sell its products exclusively on its platform only. The existing exclusivity restrictions on the sellers registered on the platform of the marketplace entities would now required to be removed.
E-commerce entities were allowed to provide support services to the vendors registered on their platform. Support services can only be provided by the e-commerce entity itself or other entities in which e-commerce marketplace entity has direct or indirect equity participation or common control. Further, such services should be fair and on arm’s length basis. Earlier, there was no restriction on the pricing of support services provided by the e-commerce entities to the vendors. However, as per the Press Note, e-commerce entity can provide such services only at arm’s length basis. One area of importance will be the basis on which the market place entities can consider the support services provided to vendors on arm’s length basis.
E-commerce entities will not directly or indirectly influence the sale price of goods or services and ensure to maintain level playing field. Cash back provided by group companies of marketplace entity to buyers shall be fair and non-discriminatory. Additionally, provision of services to any vendor on such terms which are not made available to other vendors in similar circumstances shall be deemed to be unfair and discriminatory. Various existing schemes provided by the group companies of the market place entities would be required to be revisited to ensure the compliance with the terms and conditions stipulated in the Press Note.

To summarize, since the Press Note will be effective from February 01, 2019, the e-commerce entities will have time till January 31, 2019 to comply with the terms and conditions of the Press Note and if required, revising their existing business models, arrangements, corporate structures and existing policies.

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