Though leading ecommerce players like Amazon and Flipkart appear to be violating the spirit of the ecommerce law which prevents FDI in firms which serve retail customers, the government has just invoked a new line of defence, of the sovereign’s right to make policy with the courts’ role restricted to only ensuring the policy does not violate the Constitution. Since FDI is not allowed in multi-brand retail but is coming into B2C (business-to-consumer) ecommerce through what is called the ‘market place’ model, traditional brick-and-mortar companies went to court alleging bias. Normally, this should have worked well since, if FDI is not allowed in multi-brand retail, it cannot be allowed in through the back door in ecommerce either. More important, it creates an unlevel playing field since, an Amazon or a Flipkart, is able to use foreign funds to offer very large discounts to attract customers away from traditional retailers – witness the huge discounts available across most ecommerce firms – who do not have access to the same cheap/free money.
The level-playing-field argument, however, has been made irrelevant with the Department of Industrial Promotion and Policy’s (DIPP) new stance before the Delhi High Court. In the fight between the Ambani brothers on allocation of gas from the KG Basin, the DIPP has cited the Supreme Court judgment as saying “it cannot, and shall not, be the endeavour of this Court to evaluate the efficacy of auction vis-à-vis other methods …. it cannot and will not compare which policy is fairer than the other”. In Maiyain versus Union of India, the SC said “unless the decision is shown to be contrary to any statutory provision or the Constitution, the Court would not interfere with an economic decision taken by the State … Nor are the courts inclined to strike down a policy … because … a different policy would have been fairer or more scientific or more logical … wisdom and advisability of economic policy are ordinarily not amenable to judicial review”. All this, ironically, when the same DIPP affidavit says “it is submitted that the term ‘market place’ is not recognized in the FDI policy” – amazingly, the next sentence of the affidavit says, “However, it is yet again stated that FDI Policy unambiguously does not permit FDI in B2C e-commerce”!
If the DIPP has to put out such an affidavit, it is because the government wants to run with the hare and hunt with the hounds. Since its core constituency of small retailers opposes FDI in multi-brand retail, the government has opposed it – amazingly, though, it remains on the statute as removing a law passed by the UPA would make the NDA government look anti-reform. The small retailer, however, has realized that while a Wal-Mart may not pose too much of a threat since most cities don’t have the kind of large retail spaces a Wal-Mart needs, deep-pocketed etailers can, and are, making life difficult for them. But the government also knows that if it bans ‘market places’, very large FDI flows will simply dry up, and it will be branded anti-reform; if, on the other hand, it allows B2B ecommerce to include ‘market places’, it will have to allow FDI in multi-brand retail. The only way to reconcile this non-reconcilable position is to simply put the policy outside the purview of the courts. It would be so much straightforward if the government was to simply allow FDI in multi-brand retail since, in any case, this is not going to hit small kiranas. Perhaps the government will have to do this if brick-and-mortar retailers approach the Competition Commission with their level-playing-field argument.