E-Commerce Firms Can’t Own Or Control Inventories, Commerce Ministry Reiterates

India reiterated its stance on e-commerce firms with inventories, including Amazon Inc. and Flipkart, saying it not only violates the foreign direct investment policy in the sector but also circumvents policy restrictions on multi-brand retail trading.

The clearly worded statement came on Thursday as the Commerce Ministry was responding to comments in the media on the clarification note it issued last week imposing new restrictions on e-commerce companies that will kick in from Feb. 1.

The government has only reiterated the policy provisions to ensure better implementation of the policy in letter and spirit, the comment said, adding it’s only applicable to entities which operate a marketplace for e-commerce and there’s no change in the FDI policy on food product retail trading.

It also said that an e-commerce entity providing marketplace will not, directly or indirectly, influence the sale price of goods or services.

Arvind Singhal, chairman of Technopak Advisors, wasn’t optimistic about the ministry’s move. There isn’t just lack of knowledge by the government officials on the matter of retailing but also reflects lack of transparency the way things have come out with regards to policy around online retailing, Singhal told BloombergQuint over the phone. “The government should have clarified who are the parties and entities that were made part of the consultation and should have been more transparent and clearer about the policies in the first place.”

On the sale of private labels, the government clarified that the present policy doesn’t impose any restriction on the nature of products which can be sold on the marketplace.

“Since most of the private label products are sold on the marketplace’s platform by the group companies of the marketplace entity, the stipulation in the Press Note effectively cast a shadow on the ability of marketplace platforms to sell its private label products on its platform,” Vaibhav Kakkar, partner-M&A, general corporate and regulatory practices at Luthra & Luthra Law Offices, said.

Praveen Khandelwal, secretary general of the Confederation of All India Traders, told BloombergQuint that Amazon and Flipkart are looking to oppose the revise FDI policy, adding a delegation of the federation met Union Commerce Minister Suresh Prabhu. “The minister has assured that they are actively working on (an) e-commerce policy and once it’s finalised, it will be implemented soon.”