The Department Of Industrial Policy and Promotion has issued a notification that has become operational with immediate effect. According to the notification Indian e-commerce companies may be required to restructure their operations to comply with the definition of “group companies”. This is in addition to other regulatory and business structuring requirements already in operation.
According to the latest notification if a company is able to exercise direct or indirect voting right of at least 26% or appoint at least half the board in another company or other companies, then the companies are group companies.
This practically means that e-commerce companies in India would now be required to reduce their stakes in other companies or joint ventures if they want to source more than 25% of the products for its retail stores.
Of late, e-commerce websites in India are violating various laws of India. For instance, E-commerce websites dealing with online pharmacies, online gamming and gambling, online selling of adult merchandise, etc are openly and continuously violating the laws of India.
This has led to a demand to regulate e-commerce websites in India. In fact, online pharmacies websites of India are already under regulatory scanner. The latest regulatory initiative is another step in this direction.
The new definition could also impact several e-commerce companies that have established back-end companies through which they route foreign investments. These companies, in turn, sell to the front-end companies that sell to customers.
Companies like Walmart have been probed for market access lobbying and even Indian government had promised that it would ascertain beneficiary in the Walmart probe. Meanwhile, the Central Government has given a wide leverage to state Government to allow foreign direct investment in retail sector in their respective States. Himachal Pradesh and 10 other States and Union Territories have already agreed to allow foreign direct investment in multi-brand retail.