A striking FDI Policy announcement was made by the Ministry of Commerce and Industry that seems to be a major setback to e-commerce players. It says, that the e-commerce companies running marketplace platforms, like Amazon and Flipkart, cannot sell products on their platform through companies where they hold an equity stake! This decision would be effective from 1st February 2019. And as a result of this decision, retailers such as Cloudtail India may not be able to sell their products on the marketplace run by companies that have ownership in such retailers!
As per the FDI policy on e-commerce sector, while 100% FDI under automatic route is permitted in the marketplace model of e-commerce, FDI is not permitted in inventory based model of e-commerce. Besides, e-commerce marketplace entity will also be now required to furnish a certificate along with a report of the statutory auditor to Reserve Bank of India, confirming compliance of all the guidelines by September 30 every year for the preceding financial year.
Over the past couple of years, e-commerce firms such as Amazon and Flipkart have been forced to change their legal structures because of FDI rules announced in March 2016 by the DIPP, which allowed FDI in online marketplaces even as it capped the contribution of a single seller to 25 percent of the marketplace’s overall business. Amazon has over the past few years reduced its reliance on Cloudtail and gets a bigger share of its overall revenues from other large sellers to comply with existing FDI rules. Like Amazon, Flipkart has also reduced its reliance on WS Retail over the past two years and is reported to be working with other large sellers.