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New e-commerce policy comes into effect

Topics Covered:

  1. Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
  2. Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.

 

New e-commerce policy comes into effect

 

What to study?

For Prelims and Mains: New e-commerce policy- facts, significance, concerns and the way ahead.

 

Context: India’s new e-commerce policy came into effect on February 1, 2019. A new set of policy rules had been formed for the e-commerce companies. DIPP gave them a 60-day window period for aligning themselves to the government’s modified foreign direct investment (FDI) rules.

 

Key Highlights of the new policy:

  1. Bar online retailers from selling products through vendors in which they have an equity interest.
  2. Also bars them from entering into exclusive deals with brands for selling products only on their platforms.
  3. All online retailers will be required to maintain a level playing field for all the vendors selling their products on the platform, and it shall not affect the sale prices of goods in any manner.
  4. Disallows e-commerce players to control the inventory of the vendors. Any such ownership over the inventory will convert it into inventory based model from marketplace based model, which is not entitled to FDI.
  5. Under the new rules, the e-commerce retailer shall be deemed to own the inventory of a vendor if over 25 per cent of the purchases of such a vendor are through it.
  6. Restricts marketplaces from influencing prices in a bid to curb deep discounting. With this, special offers like cashback, extended warranties, faster deliveries to some brands will be prohibited, with the view to provide a level playing field.

 

Significance:

The key objective behind the revising the FDI rules for the e-commerce giants is to level the playing field in the retail space, as heavy discounting on online retail sites was causing heavy losses to the small and medium brick and mortar stores.

 

Expected impacts and outcomes:

  1. The policy will impact global e-commerce players like Walmart-owned Flipkart and Amazon, who would have to change their business structures to comply with the new policy, which was announced late in December.
  2. The new norms could take a massive toll on the earnings of Amazon and Flipkart. Earlier this month, both the e-commerce companies had asked that the deadline be extended by 4 and 6 months respectively, leading to traders’ opposition.

 

Sources: the hindu.

Mains Question: The recent updates to the regulations governing FDI in e-commerce does well to close out the transgressions and violations in the existing policy wrt FDI in e-commerce. Critically Analyze.