Almost a year after publishing Press Note 2, the government has officially sealed it through a gazette notification. The government has now made it mandatory for foreign-funded e-commerce marketplaces to file the Foreign Direct Investment (FDI) compliance report before September 30 every year.
Similar to how companies file annual reports, e-commerce marketplaces backed by overseas investors will now have to conduct an audit on PN2 compliance and furnish a certification of conformity of the preceding financial year to the government by September.
In December last year, the government has issued a Press Note 2 which required FDI compliance certification to be submitted to the Reserve Bank of India. The provision was later included in the FEMA notification. This FDI Policy regulates the nature and amount of foreign direct investment permissible in the Indian e-commerce space.
It’s worth noting that the government had asked e-commerce marketplaces, including Amazon and Flipkart, to file FDI compliance report for two months — February and March 2019. However, there is no clarity on whether the intermediary platforms furnished such reports or not.
The FDI draft policy, which was implemented in February, barred marketplaces from selling products through vendors in which they have equity and from allowing vendors to sell exclusively on their platforms. It also prohibits sellers from making more than 25% of its total purchases from group companies these of online platforms.
While trader representation bodies have welcomed the notification, a fraction of entrepreneurs believe that smaller startups will have to go through the burden of additional compliance since the deep-pocketed players will eventually get a clean chit from the government.
Nevertheless, the notification would make FDI compliance a standard part of the audit. Going forward, auditors and audit partners will now be held accountable for giving a certification of PN2 compliance.
