Indian ecommerce leaders, Amazon and Flipkart are now seeking more time to fall in line with the FDI norms as notified by the government on December 26. The companies were given time till February 1 to comply. According to an Economic Times report, of the two, Amazon has asked for an extension up to June 1 while Flipkart is asking for a six-month leeway to set things in order and be in compliance.
The government may or may not agree to this extension, since the stance taken by the government is that it has not introduced anything new in the Dec 26 Press Note but just reiterated what was there in the original FDI policy issued in 2016. This is particularly in response to the argument by the foreign investors that they were all consulted the last time when the policy was drafted but not this time when these changes have been notified.
One reason cited by the companies for seeking more time is that they need to rework the contracts they have already in place. In the present arrangement, Amazon and Flipkart being the owners of their respective online retail platforms have an arm on the B2B model as well. There, they make purchases directly from the manufacturers and then from these B2B platforms some select sellers buy in bulk and sell on the retail site to customers. Some of these sellers have been indirectly setup by Amazon and Flipkart having invested in them. This is one arrangement the government wants them to get out of.
This was also the lacuna pointed out by the Indian trade bodies that this is nothing but violation of the FDI policy since these foreign investors are in a way involved in doing what they are expressly prohibited from doing; controlling an inventory-based selling model in the retail segment. The government saw merit in this complaint and has acted accordingly.
It is learnt that the companies have written to the Department of Industrial Policy and Promotion, DIPP explaining their predicament and asking for a time extension. It remains to be seen how the government will treat this request. For the ruling dispensation at the Centre, being an election year, it may not want to be seen to be on the wrong side of the trading community. Already there have been a few moves to placate the small traders by offering some incentives.