Lok Sabha Question No. 3849 (UNSTARRED), answered on 2019-12-11
Subject: Unethical e-Commerce Business Model
Ministry: COMMERCE AND INDUSTRY
Asked by: Ram Kripal Yadav

## GOVERNMENT OF INDIA MINISTRY OF COMMERCE & INDUSTRY DEPARTMENT FOR PROMOTION OF INDUSTRY AND INTERNAL TRADE

## LOK SABHA

## UNSTARRED QUESTION NO. 3849.

TO BE ANSWERED ON WEDNESDAY, THE 11 TH  DECEMBER, 2019.

## UNETHICAL e-COMMERCE BUSINESS MODEL

## 3849.  SHRI RAM KRIPAL YADAV:

Will the Minister of COMMERCE AND INDUSTRY be pleased to state:

वाणिज्य

## एवं उद्योग मंत्री

- (a) whether e-commerce companies are doing business as per the Government rules and if so, the details thereof;
- (b) whether e-commerce companies are selling items at lower prices to customers in comparison to retailers and whether the retail business is badly affected  due  to  unethical  business  model  of  the  e-commerce  companies, thereby negatively impacting the economy and if so, the details thereof;
- (c) whether the Government has taken/ is likely to take any steps in this regard and if so, the details thereof; and
- (d) whether  the  Government  is  considering  to  improve  the  mutual  coordination between e-commerce companies and retailers and if so, the details thereof?

## ANSWER वाणिज ् य एवं उद्योग मंत्री श्री पीयूष गोयल THE MINISTER OF COMMERCE & INDUSTRY

## ( ) (SHRI  PIYUSH GOYAL)

- (i) e-Commerce  companies  are  subject  to  various  extant  rules and regulations. Owing to the cross cutting nature e-Commerce, different  laws  and    regulations  across  sectors govern the present e-Commerce activities, some of which are; Income  Tax  Act,  1961,  Consumer  Protection  Act,  1986, Information Technology Act, 2000, Foreign Exchange Management  Act,  2000,  Payment  And  Settlement  Systems Act  2007,  Companies  Act,  2013  and  laws  related  to  Goods and Services Tax.

of

- (ii) DPIIT vide Press Note 3 of 2016 containing Guidelines for FDI on  e-commerce  was  issued  on  29  March,  2016.  However, allegations  were  made  against  e-commerce  companies  that the marketplaces were violating the norms laid down in Press Note 3 of 2016. So in order to provide further clarity on FDI

## (a) to (c):

policy in e-commerce,  Press Note 2(2018) (Annexure-I) was issued by DPIIT on 26th December, 2018. Through the Press  Note  2(2018),  Government  has  reiterated  the  policy provisions with more clarity to ensure better implementation of the  policy  in  letter  and  spirit.  Further,  as  per  clause  (ix)  of Press  Note  2(2018),  e-commerce  entities  providing  market place will not directly  or indirectly influence the sale price of goods  or  services  and  shall  maintain  level  playing  field. Services  should  be  provided  by  e-commerce  marketplace entity  or  other  entities  in  which  e-commerce  marketplace entity  has  direct  or  indirect  equity  participation  or  common control, to vendors on the platform at arm's length and in a fair and non-discriminatory manner. Such services will include but not limited to fulfilment, logistics, warehousing, advertisement/ marketing,  payments,  financing  etc.  Cash  back  provided  by group companies of marketplace entity to buyers shall be fair and  non-discriminatory.  For  the  purposes  of  this  clause, provision of services to any vendor on such terms which are not made available to other vendors in similar circumstances will be deemed unfair and discriminatory.

- (iii) Confederation  of  All  India  Traders  (CAIT)  has  represented that large e-commerce platforms are in violation of Press Note 2 of 2018 of the FDI Policy as they are engaging in predatory pricing and are providing excessive discounts. In this regard, responses/clarifications were sought from e-commerce companies concerned on the allegations made by CAIT. All ecommerce  companies,  in  their  responses  have  maintained that they do not exercise any control over sellers and operate a pure marketplace. Any discount which is offered are offered by the seller/vendor or the respective brand alone.
- (iv) CAIT  has  also  filed  a  petition  with  the  Jodhpur  Bench  of Rajasthan High Court alleging FDI policy violations by e-commerce  companies  like  Flipkart  and  Amazon  which  is sub-judice.
- (v) A  draft  e-commerce  policy  was  prepared  and  put  up  in  the public domain on February 23, 2019 for comments/suggestions. Comments from over 120 stakeholders  (companies,  Industry  associations,  think  tanks, foreign governments) have been received.
- (d): For improving the mutual coordination between e-Commerce companies and retailers, stakeholder consultation are being held.

*****

## ANNEXURE  REFERRED  TO  IN  REPLY  TO  PARTS  (a)  TO  (c)  OF  THE  LOK SABHA UNSTARRED QUESTION NO. 3849 FOR ANSWER ON 11.12.2019.

## Government of India Ministry of Commerce & Industry Department of Industrial Policy & Promotion

Press Note No. 2 (2018 Series)

Subject: Review of the policy on Foreign Direct Investment (FDI) in e-commerce

- 1.0 In order to provide clarity to FDI policy on e-commerce sector, Para 5.2.15.2 of the Consolidated FDI Policy Circular 2017 will now read as under:

## 5.2.15.2 E-commerce activities

| Sector/Activity        | %of Equity/FDI Cap   | Entry Route   |
|------------------------|----------------------|---------------|
| E- commerce activities | 100%                 | Automatic     |

- 5.2.15.2.1 Subject to provisions of FDI Policy, e-commerce entities would engage only in Business  to  Business  (B2B)  e-commerce  and  not  in  Business  to  Consumer  (B2C)  ecommerce,

## 5.2.15.2.2 Definitions:

- i) E-commerceE-commerce  means  buying  and  selling  of  goods  and  services including digital products over digital & electronic network.
2. ii)   E-commerce entityE-commerce entity means a company incorporated under the Companies  Act  1956  or  the  Companies  Act  2013  or  a  foreign  company  covered under section 2 (42) of the Companies Act, 2013 or an office, branch or agency in India as provided in section 2 (v) (iii) of FEMA 1999, owned or controlled by a person resident outside India and conducting the e-commerce business.
3. iii)  Inventory  based  model  of  e-commerceInventory  based  model  of  e-commerce means an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly.
4. iv)  Marketplace  based  model  of  e-commerceMarketplace  based  model  of  ecommerce  means  providing  of  an  information  technology  platform  by  an  ecommerce entity on a digital & electronic network to act as a facilitator between buyer and seller.

## 5.2.15.2.3 Guidelines for Foreign Direct Investment on e-commerce sector

- i) 100% FDI under automatic route is permitted in marketplace model of ecommerce.
2. ii) FDI is not permitted in inventory based model of e-commerce.

## 5.2.15.2.4 Other Conditions

- i) Digital & electronic network will include network of computers, television channels and  any  other  Internet  application  used  in  automated  manner  such  as  web pages, extranets, mobiles etc.
2. ii) Marketplace e-commerce entity will be permitted to enter into transactions with sellers registered on its platform on B2B basis.
3. iii) E-commerce marketplace may provide support services to sellers in respect of warehousing, logistics, order fulfillment, call centre, payment collection and other services.
4. iv) E-commerce entity providing a marketplace will not exercise ownership or control over the inventory i.e. goods purported to be sold. Such an ownership or control over the inventory will render the business into inventory based model. Inventory of a vendor will be deemed to be controlled by e-commerce marketplace entity if more than 25% of purchases of such vendor are from the marketplace entity or its group companies.
- v) An  entity  having  equity  participation  by  e-commerce  marketplace  entity  or  its group companies, or having control on its inventory by e-commerce marketplace entity  or  its  group  companies,  will  not  be  permitted  to  sell  its  products  on  the platform run by such marketplace entity.
6. vi) In  marketplace model goods/services made available for sale electronically on website should clearly provide name, address and other contact details of the seller. Post sales, delivery of goods to the customers and customer satisfaction will be responsibility of the seller.
7. vii) In marketplace model, payments for sale may be facilitated by the e-commerce entity in conformity with the guidelines of the Reserve Bank of India.
8. viii) In marketplace model, any warrantee/ guarantee of goods and services sold will be responsibility of the seller.
9. ix) E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field. Services should be provided by e-commerce marketplace entity or other entities in which e-commerce  marketplace  entity  has  direct  or  indirect  equity  participation  or common control, to  vendors  on  the  platform  at  arm's  length  and  in  a  fair  and nondiscriminatory manner. Such services will include but not limited to fulfilment, logistics, warehousing, advertisement/ marketing, payments, financing etc. Cash back provided by group companies of marketplace entity to buyers shall be fair and non-discriminatory. For the purposes of this clause, provision of services to any  vendor  on  such  terms  which  are  not  made  available  to  other  vendors  in similar circumstances will be deemed unfair and discriminatory.
- x) Guidelines on cash and carry wholesale trading as given in para 5.2.15.1.2 of Consolidated FDI Policy Circular 2017 will apply on B2B e-commerce.
11. xi) e-commerce marketplace entity will not mandate any seller to sell any product exclusively on its platform only.
12. xii) e-commerce marketplace entity will be required to furnish a certificate along with a report of statutory auditor to Reserve Bank of India, confirming compliance of bove guidelines, by 30th of September of every year for the preceding financial year.

Subject  to  the  conditions  of FDI policy  on  services  sector  and  applicable laws/regulations, security and other conditionalities, sale of services through ecommerce will be under automatic route.

- 3.0 The above decision will take effect from 01 February, 2019.

## (Atul Chaturvedi) Additional Secretary to the Government of India

D/o IPP File No.: 5/3/2015-FC-I dated: 26 December, 2018 Copy forwarded to:

1.  Press Information Officer, Press Information Bureaufor giving wide publicity to the above Press Note.
2.  Reserve  Bank  of  India,  Foreign  Exchange  Department,  Mumbaifor  suitably incorporating  the  policy  changes  in  Foreign  Exchange  Management  (Transfer  or issue  of  security  by  a  person  resident  outside  India)  Regulations,  2000  and  the relevant schedules thereof.
3.  NIC Section in the Department of Industrial Policy and Promotionfor uploading the Press Note on DIPP's website.
4.  Hindi Section, DIPPfor providing Hindi version.

*******