Amid growing demand for action against e-commerce players, including Amazon and Flipkart, for alleged violation of foreign direct investment (FDI) policies, a government-industry subgroup has suggested formation of a dedicated regulator to oversee any contravention of FDI rules in e-commerce, among others, an official source told FE. Until such a watchdog comes into being, the government should, as a temporary measure, form a wing comprising officials from the Department of Industrial Policy and Promotion (DIPP) and the Enforcement Directorate (ED) to address any “grievances” relating to FDI in e-commerce, including violations of such rules.
The proposed regulator will also oversee issues like consumer protection and full disclosure by e-commerce entities on the purpose and intent of their operations, said the source. Recently, the $16-billion Walmart-Flipkart deal came under attack by the Confederation of All India Traders (CAIT) that represents brick-and-mortar stores. The CAIT has threatened to step up agitations, claiming “the deal is circumventing (FDI) laws”, besides helping Walmart “to reach out to offline trade through e-commerce way”.
Currently, while the DIPP formulates and notifies FDI policies, including those on e-commerce, any violation of such rules is dealt under the penal provisions of the Foreign Exchange Management Act (FEMA). This Act is administered by the Reserve Bank of India, and the ED is its enforcement authority.
The subgroup’s suggestion is being deliberated upon by a task force, headed by commerce secretary Rita Teaotia. The task force will soon finalise a report on e-commerce and submit it with a think tank, headed by commerce and industry minister Suresh Prabhu. A note, based on the final report, prepared by the think tank, will be placed before the Cabinet for approval.
The CAIT has been accusing etailers of violating FDI rules at least on two counts: they are influencing pricing of products sold on their platforms by giving heavy discounts themselves and that they own the inventory of most of the goods sold on their platforms; thus, they are not just e-commerce marketplaces as they claim to be. For their part, Amazon and Flipkart — just like other e-commerce players — have rejected such allegations and maintained that they have always complied with the FDI norms.
Currently, the government allows up to 100% FDI in e-commerce marketplaces via the automatic route, but no FDI is allowed in the inventory-based model (barring food retail). Only in the retailing of locally-produced food products — both online and offline – is up to 100% FDI allowed, with the permission of the government.
Online market places are also barred from indulging in activity (such as offering discounts in sale) that would influence prices of products sold on their platforms. E-commerce players have claimed that discounts are being offered by sellers on their platforms, and not themselves.
Amazon, Big Basket and Grofers have obtained the government’s approval to set up food retail venture, so they can hold inventory of such food products. However, as per rules, such food stocks have to be kept distinctly separate from inventory of their other ventures. Also, they are not allowed to hold inventory of other goods sold on their e-commerce platforms.