The Finance Ministry has backed the scrapping of restrictions on ecommerce companies that have overseas investment, such as those on directly offering discounts to customers, said an official.

“This condition (directly or indirectly influencing discounts) is arbitrary,” the person said. “It unnecessarily creates confusion.” The Foreign Direct Investment (FDI) policy allows companies such as Flipkart and Amazon to function as market places or platforms for buyers and sellers to transact. But discounts, a critical element of the ecommerce business model, can only be offered by sellers, not the market places.

The Finance Ministry is of the view that this and other curbs have given rise to confusion and could be discouraging investments, offering support that could tilt the balance in favour of a simple and clear policy for online retail.

A Niti Aayog panel is reviewing the overall policy framework for ecommerce and is expected to firm up its views on the matter in a month. It has already held discussions on the issue with stakeholders.

A final decision will be taken after the committee submits its recommendations. The Department of Industrial Policy and Promotion (DIPP) issued a press note in March clarifying the provision relating to ecommerce.

The policy allows 100% FDI in the market place model through the automatic route. But it also clearly lays out the rules for price cuts.

“Ecommerce entities providing market place will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field,” the policy states. Besides that, no single vendor can account for more than a fourth of total sales on the platform.

It also rules out FDI in the inventory-based model, so foreign funded ecommerce companies cannot buy goods, stock them and then retail them to consumers online.

The restrictions were imposed after brick-and-mortar businesses complained against online discounts and sought a level playing field. North Block is of the view that the sector can be a much bigger investment draw if the rules are eased, thus creating more jobs. Besides, it feels such provisions could be open to legal challenge as they may be seen as unduly restrictive.

The Finance Ministry is keen to bring about predictability and clarity in the foreign investment regime besides encouraging technology and innovation.

E-commerce is also seen as an important medium for small businesses to reach consumers.

The Niti Aayog committee comprises the secretaries of DIPP, Department of Economic Affairs and Department of Electronics and Information Technology, besides representatives of six states.

Source: Times of India