Editorial – August 2018

In our continuing coverage of e-commerce companies, we bring to you the latest developments in this domain. The two leaders in the field – Amazon & Flipkart – are in massive violations of FDI Rules notified as PN3/2016. A PIL praying for investigations into the practices of these companies was filed in the Delhi High Court. The petitioner’s prayers were specific: ED be ordered to investigate Amazon, Flipkart and the web of their companies for violations of PN3/2016 and initiate legal proceedings under FEMA for violations of FDI Rules. The bench of Chief Justice, Gita Mittal which heard the petition on July 30, 2018 directed the ED to file the reply within six weeks. The next hearing is on November 19, 2018.

Meanwhile, the government is in the process of finalizing its National Policy on e-commerce. An elaborate structure has been set up for formulating this policy. There is a Think Tank chaired by Suresh Prabhu, minister of commerce & industry. This Think Tank set up a task force on April 24, 2018. The job of the task force is to prepare a set of recommendations and submit it to the Think Tank within five months. The Task Force is in turn divided into sub-groups to discuss a wide array of issues: e-commerce, digital economy, physical and digital infrastructure, regulatory regime, taxation policy, data flows, server localisation, intellectual property rights protection, FDI, and trade-related aspects, including taxation, infrastructure, investments, technology transfer, data protection, regulations and competition. Sub-group meetings were held with participation of stakeholder ministry officials and industry bodies. Task Force meeting has already been held and a draft policy is under circulation among members.

A major feature are the grievances related to violations of FDI rules and a proposal to strengthen the ED to handle PN3/2016 implementation. But the major spin is the clause that proposes to allow 49 per cent FDI in inventory based B2C model. Inventory-based e-commerce is disallowed by PN3/2016. This is the stipulation that has been violated. Such a clause would regularise past violations. It would also be a severe breach. After all, the brick and mortar retail industry had relented and withdrawn cases because of such clauses. PN3/2016 had struck a fine balance, it ought to be implemented. Bringing in 49 per cent FDI clause in FDI would bailout Amazon, Flipkart, its group companies, its controlled sellers and its name lenders. Rather any update of policy should concern itself with issues of price distortion and unfair business practices. For full details of the proposed policy, and its intent, revealed through controversial clauses, read our cover story.