The government is exploring the possibility of deferring the new FDI norms in e-commerce even as Walmart-backed Flipkart has warned of “significant customer disruption” if the norms are not delayed by six months.
The norms notified last month prohibit large online marketplaces such as Amazon and Flipkart from owning equity in any of their vendors or having control over the inventories sold on their platforms.
“We have received representation for and against the implementation of the new policy from February 1. A considerate view would be soon taken after taking all aspects into account,” a senior commerce ministry official said.
Sources said the Modi government is in a Catch-22 situation as these changes are being seen by global business leaders as policy uncertainty and impacting investment sentiments. However, with general elections round the corner, the government cannot antagonise the trading community, a strong support base for the BJP, who had been affected by demonetisation and the GST, and the backdoor entry of online retailers with deep pockets. However, sources said the government could postpone the norms by a couple of months to enable the global players to restructure their businesses.
The guidelines said e-commerce entities, which operate a marketplace, will not be allowed to exercise ownership or control over inventory. Any ownership or control over the inventory will convert the business into an inventory-based model. While Amazon has sought a deferment by four months, Flipkart is said to have proposed a six-month extension in their letters to the Department of Industrial Policy and Promotion (DIPP).
They have reportedly told the DIPP that it would be difficult for them to comply with the rules by February 1 as it involves extensive overhauling of its business model and systems.
The policy move has jolted Walmart, which last year invested $16 billion in Flipkart in its biggest-ever deal, and Amazon, which has committed $5.5 billion in India investments.
Industry sources have said the new policy will raise compliance costs and force Amazon and Flipkart to review their business arrangements in the country.
The global firms’ concerns were voiced by the US government with Indian officials last week.
The Telegraph
