Govt sticks to Feb 1 deadline for new e-commerce rules

The Department of Industrial Policy and Promotion (DIPP) said on Thursday it will not extend the February 1 deadline for new rules that e-commerce companies must follow.

The deadline is for compliance with Press Note 2, which prohibits foreign direct investment (FDI) in inventory-based e-commerce platforms and their subsidiaries which sell on the platforms.

Press Note 2 was issued as a clarification for Press Note 3 of 2016, which stated that FDI in the marketplace model was not allowed. The clarification, issued in December 2018, had noted the innovative structuring by marketplaces to evade the guidelines. 

The note says that the DIPP will not consider representations for extension of the deadline. E-commerce behemoths Flipkart and Amazon have been requesting an extension to the deadline by four to six months to comply with the directive. However, trader bodies like the Confederation of All India Traders as well as smaller e-commerce players, including Snapdeal and ShopClues, had written to the DIPP to not give in to these requests. 

"E-commerce entities who may not have revisited their group structures in the hopes of an extension from DIPP and their sellers will also have to now consider as to how to dispose of such portion of the existing inventory which shall be deemed to be the inventory of the e-commerce entity by virtue of Press Note 2 of 2018 coming into effect, since the e-commerce entity having FDI in it cannot sell its own inventory," said Atul Pandey, partner at legal firm Khaitan & Co.

Meanwhile, large sellers on both Flipkart and Amazon India were told that it would be ‘business as usual’ after February 1 save a minor disruption of a fortnight when some major sellers will be blacked out from the platform to return later.

The February 1 deadline is unlikely to impact Cloudtail India, which is a joint venture between Amazon Asia and Prione Business, a company owned by Catamaran Ventures, the family investment office of Infosys co-founder NR Narayan Murthy, as it does not receive FDI directly from Amazon. 

However, the move will affect Amazon India’s interest in purchasing shares in Kishore Biyani-led Future Retail, as well as its other partnerships with Shopper’s Stop in which it holds a 5% stake and its acquisition of Aditya Birla Group’s food retail chain More.

For Flipkart, in which Walmart owns 77%, the move by the DIPP will impact the interests of the US-based retailer, which was looking at retailing its products through the online platform. Recently, Kalyan Krishnamurthy, Flipkart’s chief executive, reportedly told the Indian government that the company could face ‘major disruption’ if the deadline was not extended.