For made-in-India products: FDI rules may be eased for e-commerce

 

To boost sales of domestically produced goods on e-commerce platforms, the Centre may consider easing foreign direct investment rules for the inventory-based e-commerce model for made in India products.

A task-force, headed by Commerce Secretary Rita Teaotia, on creating a draft e-commerce policy has submitted its recommendations, in which it has suggested that a limited inventory-based B2C (business-to-consumer) model with 49 per cent foreign equity be allowed. Presently, the government restricts e-commerce platforms with foreign shareholding from deploying the inventory model.

The task-force was set up under a committee headed by Minister of Commerce and Industry Suresh Prabhu, which is deliberating on a policy for e-commerce operations in India. Apart from easing FDI rules, it has also recommended the setting up of a Central Consumer Protection Authority to act as a nodal agency for intra-government coordination and to provide a forum for consumers to register unresolved complaints. Between April and November last year, the National Consumer Helpline received 54,114 complaints related to the e-commerce sector.

The recommendations have come at a time when foreign investors are increasingly placing bets on India’s e-commerce market, which, according to some estimates, could be worth $200 billion over the next 10 years. Anup Wadhawan, Special Secretary, Ministry of Commerce and Industry said Monday that the task force has given its recommendations and the government will continue to hold discussions on the issue. “There is no hard and fast time-line for the policy. In the earliest possible time-frame, it will be finalised. We don’t want to continue with vacuum in the e-commerce policy space,” he said.

In its recommendations, the task-force has also proposed amendments to the Companies Act to give founders control over their e-commerce companies, despite having small shareholding. “…(This) would be examined in the light of the experience of their utilisation by e-commerce companies,” the recommendations noted, according to a document accessed by The Indian Express.

An analysis of the top start-ups in the country by The Indian Express found that six out of nine Indian start-ups operating in the consumer segment with valuations of over $1 billion, while being completely controlled by domestic shareholders early on in their life cycle, have now ceded majority control to foreign investors.

Further, looking to prevent “potentially competition-distorting mergers and acquisitions” in the e-commerce space, the task-force has recommended that the Competition Commission of India (CCI) would amend its threshold, only above which the combinations currently get mandatorily examined by the antitrust body.

“For such entities, thresholds based on other variables (such as access to data) which are more relevant in this area, would be considered,” the document said. Notably, the Competition Commission is currently examining the acquisition of India’s largest e-commerce company Flipkart by US-based retail giant Walmart.

On the lines of recommendations put forward by the committee headed by Justice BN Srikrishna on data protection and privacy, the task-force has also proposed mandatory localisation of data collected by online retailers with a two-year sunset period for the industry.

With this, it has also suggested steps to develop capacity and incentivise domestic data storage by providing direct and indirect tax-benefits and customs duty rebates, and according infrastructure status to data centres and server farms.

The task-force, however, has suggested that certain categories of data will not be subject to any restrictions on cross-border data flow. This includes data not collected in India, B2B data sent to India as part of commercial contracts between a business entity located outside India and an Indian entity, among others. It has also said that subject to rules pertaining to privacy and consent, the data should be made available to the government for national security and public policy objectives.

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