TelecomLive January-2019

Inventory based B2C e-commerce www.telecomlive.com 26 Telecom LIVE January 2019 ernment also issued further clari- fication to explain specific provi- sions of PN-2/2018 (see box-C). Vide this clarificatory PN- 2/2018, centre has imposed new restrictions on the e-commerce companies, which might have a considerable impact on the busi- ness models currently adopted by major e-commerce entities in India, such as Amazon. However, even prior to the PN- 2/2018, FDI was not permitted in 'inventory-based model of e- commerce' and 100 per cent FDI under automatic route was per- mitted only in marketplace-based mode of e-commerce. Also, there was a restriction on an e- commerce entity to permit more than 25 per cent of the sales value on financial year basis affected through its marketplace from one vendor or their group companies. Further, an e-commerce entity providing a marketplace was not allowed to exercise ownership over the inventory ie goods pur- ported to be sold. Many of the e-commerce enti- ties in India created complex cor- porate structures to get around these requirements by mandating other sellers to buy from those large sellers and then in turn sell those products on e-commerce marketplaces. In other instances, large sellers formed multiple stepdown entities, which sold their products separately on online marketplaces. By putting in place complex structures, the major e-commerce market players were leveraging from the fine line between an inventory-based model and market-place based mode of e-commerce. These structures also helped these e- commerce market players to offer heavy cash-backs, put in place prime delivery models or selling of private label products which clearly put the traders 'outside their system' in a detrimen- tal position vis-à-vis the seller entities which were part of the larger eco- system created by major e-market players. The PN-2/2018 now provides that inventory of a vendor will be deemed to be controlled by e- commerce entity if more than 25 per cent of purchases of such ven- dor are from the marketplace entity or its group companies. Further, PN-2/2018 prohibits any entity having equity participa- tion by e-commerce marketplace or its group companies or having control on its inventory by e- commerce marketplace entity to group companies, to sell its prod- ucts on platform run by such mar- ketplace entity. This clarification will have a direct impact on the business modes currently being followed by big e-commerce mar- ket players in India. PN-2/2018 not only restricts group companies of e-commerce entities from providing cashback to buyers, it also provides that e- commerce market place will not mandate any seller to sell any products exclusively on its plat- form, which again was a common practice being followed by the major e-commerce market play- ers. O n Dec 19, 2018, thou- sands of traders from various parts of the country staged a protest rally at New Delhi demanding that the centre should announce a policy on e- commerce and stop allowing FDI in retail trade and withdraw FDI in retail approved so far. The rally, organized by Confed- eration of All India Traders (CAIT), passed a unanimous reso- lution said that e-commerce & FDI in retail has vitiated the business atmosphere in the country to a great extent since the government has failed to provide checks and balances. E-commerce and FDI in retail is cancerous for the retail trade of the country which in turn will adversely affect the national economy in times to come, CAIT said in its resolution. CAIT national secretary general Praveen Khandelwal while addressing the rally demanded that the government immediately look into the issues raised by the traders and take necessary steps. Also, seven crore small business would launch a nationwide agita- tion, the strategy of which would be finalized in forthcoming meet- ing of national governing council of CAIT on 12-13 Jan 2019 at Bhopal, he added. CAIT has released a 16-point national charter of the traders at the rally (see box-A). Within a week of the rally, the government on Dec 26, 2018 issued a new Press Note 2 of 2018 (PN-2/2018) clarifying certain critical provisions of the FDI pol- icy in B2C e-commerce. It has replaced certain wordings in the old policy and added new provi- sions. The old wordings are given in box-B in blue color font, while additions have been shown in orange color font (see box-B). The new policy is slated to come into effect from Feb 1, 2019. The gov- Inventory based B2C e-commerce Under attack from traders, the centre plugs loop-holes