REGULATION OF FOREIGN DIRECT INVESTMENT IN E-COMMERCE IN INDIA

The Department of Industrial Policy and Promotion (DIPP) under the Ministry of Commerce and Industry, India has recently decided to implement yet again the guidelines issued for foreign direct investment (FDI) in e-commerce as provided by DIPP in its Press Note No. 3 (2016 Series).

According to the Press Note No. 3 (2016 Series), FDI in business to consumer (B2C) e- commerce is permitted in case a manufacturer/single brand retail trading entity wants to sell its products in India through e-commerce retail, etc. Further, a foreign e-commerce entity providing an information technology platform for facilitating transactions between buyers and sellers in India is allowed to enter the Indian e-commerce market under ‘100% FDI’ automatic route category. Although such an e-commerce entity is permitted to do B2B business with sellers registered on its platform, it cannot permit more than 25% of the sales/transactions conducted through its platform from a single vendor or their group companies.

A number of seller associations have earlier filed complaints before the Competition Commission of India (CCI) against the preferential treatment given to selected seller entities by a few e-commerce giants. The selected entities then become the major sellers on such e-commerce platforms to the disadvantage of smaller seller entities who do not get a fair opportunity to conduct B2C transactions in the e-commerce space. Further, the selected entities are allowed to give sharp discounts on such e-commerce platforms.

Reportedly, it is believed that this may have led the e-commerce giants to gain a bigger and dominant market share in the Indian online retail space, thereby making it difficult for other e-commerce entities to gain a market share in the e-commerce space. For instance, as per a few reports, Snapdeal and Shopclues merely have a share of 2-3% each in the total marketplace, whereas Flipkart and Amazon, together capture about 70% of the marketplace, thereby putting them in a place of dominant position.

Thus, the Government of India has proposed to formulate a national policy to regulate the e-commerce sector. Until such a policy is brought in force, the Government of India has proposed to create a separate wing comprising of certain officials from the DIPP and the Enforcement Directorate who would monitor and handle any violations of the FDI Policy governing e-commerce platforms, strengthen the implementation and enforcement of guidelines governing online retail platforms etc.

Thus, this move of the DIPP may help to maintain a level playing field for the sellers and the marketplace, and also promote and sustain a fair competition amongst the sellers and amongst the e-commerce entities.

Harini Daliparthy,

Senior Legal Associate

with

Siddharth Gupta

NorthCap University, Gurugram

Intern,

The Indian Lawyer