Disruptive technologies

Written by The Financial Express | Updated: Dec 19 2014, 14:30pm hrs
Two foreign-based enterprises find their India operations in conflict with regulatory bodies. Amazon, the worlds largest online retailer, has warned investors that the structure of the companys Indian operations may violate local laws. Uber, the worlds fastest growing taxi service, is caught in a similar regulatory bind. Taxi associations have written to RBI complaining that the Uber smartphone apps credit card transactions violate Indian regulations. Uber is part of the new sharing economy in which ordinary people use their personal assets to make money. Uber does not own any cabs, instead it connects with car-owners who are willing to hire out their vehicles. This new economy also includes sleeping spaces, where sites like Airbnb give house or flat-owners a chance to rent out their accommodation.

Now, regulators are cracking down, since the online services pay no tax and violate laws. In Amazons case, India bans FDI in direct online retail, so Amazon and other e-commerce sites including Flipkart have complicated structures that on paper show that these companies operate purely as marketplaces. The ED is probing online retail sites for possible violation of FDI laws. Amazon warned that it is possible the government will ultimately take a view contrary to ours. Uber is mired in the regulatory web because of the way it operates. Uber collects fares from a passengers credit card, transmits it to the Netherlands-based Uber BV in foreign currency, and sends 80% of it back to the driver after deducting commission. As it operates through a foreign payment gateway, it sidesteps the mandatory two-stage authentication for credit card transactions in India. In all these cases, the problem is that innovations have outpaced regulations.