The operations of e-services firms ? using the electronic mode to sell/offer services ? have come under the government scanner, which is now looking to bring them under strict regulatory ambit. Also, the government is exploring the option of introducing post-investment scrutiny of foreign funds in such ventures, which mostly belong to NGOs, those in the travel and tourism businesses and whose servers are hosted outside the country.
So far, the regulations are silent on the definition, scope, structure and flow of foreign investments in e-services entities. According to official sources, the need to scrutinise e-services has arisen due to multiple reasons, including non-monitored inflow and distribution of foreign funds, primarily belonging to some non-governmental organisations and also of those involved in offering travel and tourism services.
?While the NGOs with foreign links are covered by the Foreign Contribution Regulation Act, 2010, enforced by the home ministry, direct flow of foreign direct investment (FDI) in e-services portals is a cause of worry as it falls in a grey area,? said a senior official. Sources told FE that discussions between various wings of the ministries of finance, corporate affairs, home and commerce have been held in this regard.
Recently, the government also held discussions with the investors and select online companies on various related issues, including the definition and scope of e-services, holding structure, business models (including downloading / purchase of services ? after paying for it through credit card ? from a company whose server is located overseas), periodic disclosures on their FDI component and application of FDI sectoral caps to them.
The current FDI policy has not specifically looked at e-services, but has referred to e-commerce only in a generic sense, mainly from the point of view of e-commerce in merchandise goods trade.
According to a senior lawyer, who deals with cases under the IT Act, there is no definition of e-services under any law in India. ?Only e-commerce has been defined in the broad sense in the IT Act. The move to make a distinction between e-commerce and e-services should be welcomed,? he said.
?The FDI policy is silent on e-services and the government needs to bring clarity with respect to the provision of the services sector using internet as a platform. In the current environment when internet has become a viable platform to do business, placing FDI restrictions on e-services is not desirable,? said Radhika Jain, director of consultancy firm Kabran Partners.
The common factor between e-services and e-commerce in goods is that both use information and communication technologies for delivering services to customers.
However, the blanket provision in the FDI policy for e-commerce in goods and services and the ban on B2C (business-to-consumer) operations has been troubling investors in e-services ventures. This is because the FDI policy defines e-commerce activities as the activity of ?buying and selling? by a company through the e-commerce platform. However, in e-services, there is no ?buying? element, and is mostly ?selling? of services.
It is learnt that many e-services companies, including those in the travel and tourism services, have got FDI, but not many of them have made regular disclosures about the exact amount of FDI they have received. Sources said the matter is also being looked into by the RBI, which has referred some cases to the Enforcement Directorate to see if certain companies are violating FDI norms from the point of view of e-services.
When contacted, a senior executive of a leading travel portal said: ?Any FDI that comes into a e-services entity has to currently satisfy the norms listed for the e-commerce venture. More scrutiny will mean more hassles for the industry. However, it is true that there is no post-investment scrutiny once foreign funds get formal approval.?