FDI rules in e-commerce to be clarified to prevent 'creative interpretation'

The government is considering measures to curb malpractices by foreign e-commerce companies, including widening the scope of group company as this goes to the root of controlling the sellers, said an official present at a meeting on FDI policy held on Thursday.

The official said on condition of anonymity that the group should include affiliate and associate companies and prohibit direct and indirect control, be it equity or economic. A meeting to discuss FDI policy in e-commerce space was convened by the Department for Promotion of Industry and Internal Trade (DPIIT) on Thursday that was attended by 25 e-commerce companies.

The FDI policy from its very beginning has not allowed foreign capital in the inventory based model and it is allowed only in pure technical infrastructure/platform which facilitate meeting of the buyer with the seller. Such a platform cannot act as a seller itself, directly or indirectly.

The ill-effects of foreign capital dumping in the multi-brand retail and inventory based e-commerce space are well known, the official said.

The official said the forbidden gap between inventory-based model and marketplace model has been crossed by some foreign companies by the way of legal creativity of exploiting either the loopholes or by creative interpretation of the policy that violate the policy in spirit.

Such legal creativity include creating multi-level company structure to hide the real relationship between the marketplace entity and the sellers.


The relationship between the leading foreign marketplace entities and some of the largest sellers on their platforms is no secret.

Reports reveal the structure of the companies and show how these marketplace entities are engaged in control of inventory and their largest sellers.

The continued violations create doubts about the legal sanctity of the policy, especially in the minds of new e-commerce players. Therefore, it is imperative that the rules are clarified to an extent that these are not subjected to such creative interpretations, sources said.


The sources said that it must be the government's endeavour to match the letters to the spirit of the policy so that it does not create any doubt, whatsoever, in the mind of any foreign marketplace company.

These suggestions should be issued in the form of a new press note or amendment to the FDI policy, sources said. Some of the suggestions are as follows:

Widening the scope of group company: This goes to the root of controlling the sellers. The group should include affiliate and associate companies and prohibit direct and indirect control, be it equity or economic.

Preventing the misuse of B2B e-commerce: In either controlling the inventory or providing deep discounts through selected sellers by the way of capital dumping.

Compliance to the provisions of the policy is very important. A clause in the manufacturing section seems to be an omission in the policy as the same is being used for retail trading of food products by some companies. A clause in manufacturing section cannot override the spirit of the retail trading policy, sources added. - IANS