1. DIPP iterates FDI not allowed in B2C e-commerce; says FEMA to apply on violations

DIPP iterates FDI not allowed in B2C e-commerce; says FEMA to apply on violations

The Department of Industrial Policy and Promotion (DIPP) said that it is mandated only with the formulation of the FDI policy and not with the administration of money laundering laws.

By: | Published: January 6, 2016 2:23 PM
e-commerce-l The government has told the Delhi High Court that the term ‘market place’ used by e-commerce companies is “not recognized” in its FDI policy. (Thinstock)

In its reply to the All India Footwear Manufacturers and Retailers Association’s (AIFMRA) petition seeking probe into the affairs of various e-commerce websites for alleged violation of FDI rules, the government has told the Delhi High Court that the term ‘market place’ used by e-commerce companies is “not recognized” in its FDI policy, but the policy “unambiguously does not permit FDI in business-to-consumer or B2C e-commerce.”

The Department of Industrial Policy and Promotion (DIPP) said that it is mandated only with the formulation of the FDI policy and not with the administration of money laundering laws. Investigations into violations of the policy are covered by the penal provisions of the Foreign Exchange Management Act 1999 (FEMA).

It said that FDI is a capital account transaction and any violations will be looked into by the enforcement directorate under FEMA, which “provides for an effective regulatory mechanism.”

However, the government denied any special policy being formulated to condone any alleged wrong doings by the e-commerce websites.

Highlighting the importance and role of FDI in the present times, the DIPP said that FDI is a “non-debt” source of additional external finance that boosts the output in terms of increased manufacturing and growth in services, employment generation and exports of a country’s economy.

Urging the HC to dismiss the AIFMRA’s petition which failed to show that the FDI policy is “arbitrary, malafide or ultra vires of the Constitution”, the government said that its FDI policy, which was arrived at after detailed consultation with all the stakeholders, is sound, transparent and predictable with an effective regulatory mechanism.

Besides, it said that the petition is “bad” as the named e-commerce websites have not been made parties in the case. “As specific allegations/averments have been made with regard to their manner of functioning and any decision in the present writ is bound to have an adverse impact on them, they are necessary parties to the present petition,” DIPP stated in its reply. It further said that it has held meetings with stakeholders including states to address the concerns raised by the petitioner.

Earlier in November, the HC had asked the government to probe all 21 e-commerce players, including Snapdeal, Jabong, Myntra and Amazon-owned Junglee, for possible violations of FDI laws.

While seeking parity in FDI norms with e-commerce players, AIFMRA had sought a probe into the affairs of various e-commerce websites offering footwear for sale and also appropriate action against them under money laundering laws. Moreover, it wants the Centre to probe all the companies and had requested the court to restrain flow of FDI into any entity involved in e-commerce.

Over the past few years, retailers have repeatedly asked the government to create a simple FDI policy without segregation by brands and channels. Major ecommerce players like Flipkart, Snapdeal and Amazon.in have made good inroads into the country’s retailing business by offering huge discounts.

While India bars FDI in e-commerce firms that sell products directly to consumers, foreign companies are allowed to operate online marketplaces that offer a platform for sale of global brands, putting them at a disadvantage.

According to the Association, though its members are liable to pay sales tax, there is an artificial exemption being enjoyed by e-commerce entities. “This evasion further helps the e-commerce websites to claim unlawful and undue advantage of physical retailers… the valuation of these ecommerce websites being manifold, the investment into them despite losses shows that there is a clear financial bungling of the e-commerce entities which calls for an indepth and a forensic investigation into their working,” the retailers said.

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