Question 63 from UPSC CSE 2022 - Economics

Question

With reference to foreign-owned e-commerce firms operating in India, which of the following statements is/are correct?
1. They can sell their own goods in addition to offering their platforms as marketplaces.
2. The degree to which they can own big sellers on their platforms is limited.
Select the correct answer using the code given below:

Accepted Answer

Correct Option: B. 2 only

Strategy: The strategy involves distinguishing between regulatory models for foreign-owned e-commerce entities in India:

*   They are restricted to a 'marketplace' model and cannot operate an 'inventory-based' model (i.e., sell their own goods directly).
*   FDI regulations limit the control and ownership these marketplaces can exert over their major sellers, preventing indirect inventory control.

Key Info: Foreign-owned e-commerce entities in India are governed by rules under the Consumer Protection (E-Commerce) Rules, 2020 and the FDI policy issued by the Department for Promotion of Industry and Internal Trade (DPIIT).

## E-commerce Models in India

*   **Marketplace Model**: Restricts the e-commerce firm to providing an online platform connecting buyers and third-party sellers. Up to 100% FDI is permitted under the automatic route, subject to conditions.
*   **Inventory-Based Model**: The e-commerce company owns and sells its own goods directly to consumers. FDI is not permitted in this model for multi-brand retail.

## Restrictions on Seller Relationship

*   The FDI policy prohibits marketplace entities from exercising ownership or control over inventory.
*   Control is deemed if more than 25% of a vendor's purchases are from the marketplace entity or its group companies.
*   Large sellers, particularly those with equity or control by the parent company, are regulated to maintain an 'arm's length' relationship. This prevents foreign-owned entities from indirectly circumventing inventory restrictions through preferred sellers.

## Relevant Statutes & Guidelines

*   FDI Policy, Press Note 2 (2018)
*   Consumer Protection (E-Commerce) Rules, 2020
*   These guidelines aim to ensure a level playing field for Indian retailers and prevent foreign marketplaces from indirectly owning or controlling inventory.

## Examples

Foreign-owned e-commerce firms like Amazon and Walmart-owned Flipkart must comply with these marketplace restrictions.

Answer

Option A: 1 only

Answer

Option C: Both 1 and 2

Answer

Option D: Neither 1 nor 2