Yet another leading e-commerce firm, going by media reports, has come under the Enforcement Directorateís (ED) lens for breach of FDI guidelines. While the details of the case are sketchy, the ED likely wants to know why the firms have foreign investment when it is banned in e-commerce. But thatís the whole point, the law is so ambiguous, it is not surprising that enterprising lawyers have advised firms of the loopholes there are to exploit. FDI, it turns out, is allowed in B2B e-commerce ventures since, presumably, there is some technology that foreign investors bring which is useful for setting up, for instance, large storage facilitiesóor perhaps the amounts of money required are so large, the government thinks FDI will be a useful addition. Why the same logic doesnít apply to B2C e-commerce is as unclear as why FDI is allowed in cash-n-carry but not at the retail level. Anyway, since FDI is allowed in B2B, some e-commerce players have ventures which have FDI in them. They also have B2C ventures where there is no FDI. And since the law doesnít prevent B2B ventures from dealing with B2C ventures, each time you order a CD from a B2C website, it simply places an order on the B2B one which has the FDI. How bizarre the law is can best be seen from the marketplace model that allows an Amazon to sell to
Indian consumers while, technically, B2C is not allowed.
The law gets even more bizarre when it comes to Press Note 2, something that legitimises actions that other sections of the law deem illegal. Under Press Note 2, if a foreign company invests 49% in a joint venture controlled by an Indian company, any downstream investment by the JVóin setting up retail shops for instanceówill be considered Indian. Even if the JV takes a very large loan from the foreign firm, its investments will still be viewed as Indian investments. So, hereís the rub. Foreigners cannot invest in the retail business under normal circumstances. But, through Press Note 2, they can, and will still not be in breach of the letter of the law. Why was Press Note 2 even put out if it wasnít to find a way to allow Indian firms to get more foreign money while not technically being in breach of the law? One of the first things the new government needs to do is to