New Delhi, December 26 Plugging some of the loopholes in the Foreign Direct Investment (FDI) norms on e-commerce, the Centre has come up with a review policy explicitly stating who can sell on an e-commerce platform, and the distance that e-tailers have to maintain with their vendors. The norms will come into effect from February 1, 2019.

Online marketplace players, including Flipkart and Amazon, are now barred from selling the products of companies in which they hold stakes , said a press note issued by the Department of Industrial Policy & Promotion (DIPP) on Wednesday. For instance, Amazon holds stakes in Cloudtail India and Appario Retail and will not be able to sell their wares.

Inventory vs market

Norms have also been tightened around ownership and control over inventory by an e-commerce entity providing a marketplace service. “Such an ownership or control over the inventory will render the business (market-based model) into an inventory-based model. The inventory of a vendor will be deemed to be controlled by the e-commerce marketplace entity if more than 25 per cent of (the total) purchases of such a vendor are (made) from the marketplace entity or its group companies,” the note said.

E-commerce companies with foreign funds have to compulsorily operate as a marketplace, as FDI is allowed only in such models, and not in inventory-based ones.

Under an inventory-based model, companies can sell their own items; in a marketplace model, they can only serve as the link between buyers and vendors.

“In light of the deeming fiction, any sale beyond 25 per cent from a single vendor will automatically be treated as inventory and thus be barred,” pointed out Atul Pandey, Partner, Khaitan & Co.

The measures will wipe out confusion and the communication gap which was used by e-commerce players and MNCs to their advantage, said Praveen Khandelwal of the Confederation of All India Traders. “In the wake of foul play of global players in adopting all kind of tactics to control and dominate retail trade in India through e-commerce, today’s clarifications of the government will prove to be an embargo on such practices,” he said in a statement.

The policy also emphasises that the e-commerce marketplace entity should not mandate any vendor to sell any product exclusively on its platform.

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