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India planning tighter FDI rules for e-commerce sector

New Delhi: India is likely to tighten the foreign direct investment (FDI) rules for e-commerce to check companies set up by the online marketplaces from trading on their own platform.

The Department for Promotion of Industry and Internal Trade (DPIIT) may issue a clarification through a Press Note, expressly prohibiting e-commerce platforms from holding stake in a seller, directly or indirectly.

“There are concerns that some e-commerce companies are not following the rules and hold indirect stakes in affiliates. This has come to our notice,” said one official.

Press Note 2 of 2018 had banned entities related to an e-commerce marketplace from selling its goods on that marketplace. Further, the restrictions also applied to those entity whose inventory was controlled by the marketplace. The inventory of a vendor will be deemed to be controlled by the marketplace if more than 25% of the vendor’s purchases are from the marketplace entity, including its wholesale unit.

These measures were instituted to create a level-playing field and ensure that FDI-funded e-commerce entities functioned only as marketplace.

The Confederation of All India Traders (CAIT) has repeatedly complained to the government that online retailers are violating FDI rules for e-commerce. “The 25% definition is not working and blatant violations are taking place which is not in line with the spirit of law. We want to give clarity once for all,” said another official. "There is a scope for improving the current framework...," said a senior government official.



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