NEW DELHI: The government is learnt to have resolved to allow foreign direct investment (FDI) in inventory-based models of e-commerce, subject to the rider that these will be solely aimed at export markets. According to an official source, while the key ministries of finance and commerce & industry have come to a common position this regard, the two have also identified a few potential impediments in the implementation of the proposed policy and are exploring ways to address them.
“A lot of background work is required at multiple levels to enable the functioning of the proposed new framework for the sector,” the official told FE on Tuesday.
At present, FDI is not allowed in e-commerce where the platform operators are also the sellers. Also, a foreign manufacturer is permitted to sell its products manufactured in India through e-commerce retail. Another way FDI can now flow into retail e-commerce business is through single brand retail trading entities operating brick and mortar stores.
There is an understanding that this restriction (on holding of inventory by e-tailers) should not be applicable to exports,” the official who did not wish to be named said, while declining to give a timeline on when the policy could be formalised.
The government expects exports through e-commerce would account for $200 billion of the $1 trillion worth of goods exports from India by 2030.
Allowing bigger e-commerce players like Amazon greater freedom to export from India would enable domestic producers including farmers and small artisans, product owners to access the global markets. “It does not create any competition with the local players or small retailers so it is a win win for everyone,” the official added.
The government has recently tied up with Amazon for capacity building of small enterprises for exports in 20 districts. Similar agreements are expected with other large e-commerce players.
The easing of rules would require amendment in the Press Note 3 (2016 series) of the Department for Promotion of Industry and Internal Trade.
Apart from the enabling changes in the FDI rules, adjustments would have to be made on other laws too so that this change can be implemented.
The first change would require detailed guidelines on how e-commerce companies will keep the inventory for exports separate from their other operations. There could be a mechanism like a custom bonded warehouse strictly separated from the domestic tariff area (DTA) and markets. After getting entry into that bonded space, the product cannot be allowed to re-enter the DTA.
Also, a mechanism would have to be created for managing returns of goods exported through e-commerce, which would be anywhere between 15-20%. Allowing entry of these goods back into the bonded warehouse without gaining access to the DTA would require detailed guidelines and procedures, the source said, adding that consultations were on with the department of revenue in this regard.
According to the rules of Foreign Exchange Management Act, export proceeds have to be brought back to India within 270 days which might not happen in the case of e-commerce exports so here too , new rules would be required. The Reserve Bank of India will have to vet these too.
Another issue would be providing flexibility on pricing which is a key for e-commerce. Discounts or price increase after declaring export price would have to be enabled in e-commerce exports for which RBI has to be approached. In other exports flexibility of up to 10% is allowed either way to the export price.
Source: The Financial Express
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