Government of India recently amended the FDI rules in the e-commerce sector. The amendment, though mentioned as a clarification, has made substantial changes to the regulations. Foreign portfolio investors’ registration has increased sharply during the year. The data protection bill appears to have been finalized. Fitch Ratings lowered its forecast for India’s GDP growth for 2019.
Revised FDI Regulation for E-commerce – The Government of India recently issued Press Note 2 of 2018 to clarify and amend the Foreign Direct Investment (FDI) Policy on e-commerce. The press note elaborated 2 types of e-commerce models (i) inventory based (ii) market based. While 100% FDI under automatic route (without prior regulatory approval) is permitted in marketplace model of e-commerce, FDI is not permitted in inventory based model of e-commerce. Further, e-commerce entities would engage only in business to business (B2B) e-commerce and not in business to consumer (B2C) e-commerce. E-commerce entity providing a marketplace will not exercise ownership or control over the inventory i.e. goods purported to be sold. An entity having equity participation by e-commerce marketplace entity or its group companies, or having control on its inventory by e-commerce marketplace entity or its group companies, will not be permitted to sell its products on the platform run by such marketplace entity. The press note provisions will take effect from February 01, 2019.
A subsequent media report stated that the government plans to introduce a new policy on e-commerce within weeks to boost orderly growth and fair play in the $41 billion industry that caters to roughly 100 million online shoppers in India. The government is also examining the need for a regulator for the sector.
Sharp Rise in FPI Registration – Easier regulations, clamp down on offshore derivative instruments, and Indian equities outperforming other markets in the last few years have boosted foreign investors’ interest in the country, leading to a spurt in the number of foreign portfolio investors (FPI) this year. Over 600 new FPIs registered with Securities and Exchange Board of India (SEBI) in 2018 — the steepest rise in FPI count since 2014, when the market regulator overhauled rules for offshore investors and introduced the FPI regime. There are now 9,246 FPIs active in the country. Experts said a series of regulatory easing has helped improve offshore funds’ sentiment about the Indian markets in recent times. SEBI has reduced compliance burden, introduced single application form for FPI registration, and eased broad-basing norms, among other measures. Several other relaxations are also in the pipeline as SEBI-appointed H R Khan Committee on FPIs is working with the industry to make the regime even simpler. Other regulators, including the Reserve Bank of India (RBI) and Central Board of Direct Taxes (CBDT), have also liberalised some FPI norms.
Data Protection Bill Update – A recent media report claimed that Data Protection Bill prohibiting cross-border movement of information such as passwords, financial and health data, caste, religious and political beliefs, sexual status and orientation. Violations – including unauthorized processing of personal data — run the risk of severe financial censure, with the maximum penalty pegged at Rs 15 crore or four per cent of the worldwide turnover (whichever is higher). The exhaustive Bill – accessed and seen exclusively by Times of India — follows a detailed report submitted to the government by a committee headed by Justice BN Srikrishna in July this year (reported by Asia Law Portal here). It seeks the formation of a Data Protection Authority to handle the gamut of issues related to the handling of personal information; dealing with companies handling and processing data; and ensuring adherence to rules and regulations that would be notified. And while the Bill does not bar cross-border transfer of ‘personal data’, it mandates that companies maintain a mirror copy of the information within India and importantly, also seek ‘consent’ of the individual who generates the data.
Fitch Lowers India’s GDP Growth – Fitch Ratings recently released its Global Economic Outlook 2019, which had a section on India. The report stated ‘India’s GDP growth softened quite substantially in 3Q18 (calendar year), growing by 7.1% yoy after 8.2% in the previous quarter. Consumption was the weak spot, stepping down from 8.6% to 7.0%, though still growing at a healthy rate. Other components of domestic demand fared well, notably investment, which has been steadily strengthening since 2H17. The external sector was again a significant drag on overall GDP amid steadily accelerating imports. We have lowered our growth forecasts on weaker-than-expected momentum in the data, higher financing costs and reduced credit availability. We now see GDP growth at 7.2% in the fiscal year ending March 2019 (FY19), followed by 7.0% in FY20 and 7.1% in FY21.’