A small number of global e-commerce companies with a big arsenal of funding are attempting to break foreign investment guidelines for the sector, according to India’s largest traders’ organisation, CAIT, which requested tough enforcement action on Tuesday.
The Confederation of All India Traders (CAIT) said in a whitepaper on e-commerce policy that e-commerce entities have “structured their relationship as a marketplace with sellers in such a way that they are in a position to control either seller on their platform or the inventory while also avoiding the scrutiny of the enforcement agencies.”
“Under the pretext of such control or ownership over sellers, the issue morphs from a simple FDI policy breach to anti-competitive activity,” it stated.
“It is critical to take mitigation measures and take stringent action to ensure that the law is followed in letter and spirit.” Otherwise, the FDI policy on e-commerce will fall short of its goal of catering to the interests of local manufacturers, traders, sellers, MSMEs, start-ups, and the development of a level playing field in retail, according to the report.
According to CAIT, 100% foreign direct investment (FDI) is allowed in single-brand retail trade (SBRT) and B2B cash and carry under government policy. However, FDI up to 51% in multi-brand retail trading (MBRT) is only permitted with the approval of the government and is subject to a slew of requirements designed to protect MSMEs and small traders.
Because inventory-based e-commerce is nothing more than the electronic operation of a multi-brand retail store, no FDI has been allowed in this form of e-commerce under the FDI policy.
To encourage the spread of technology that can benefit MSME and kiranas, 100% FDI through the automatic route has been approved to establish an e-commerce marketplace platform.
This comes with the caveat that any organisation administering such a technological platform will not own/control the inventory of any seller on the platform, as this would equate to multi-brand retail trade. To encourage the spread of technology that can benefit MSME and kiranas, 100% FDI through the automatic route has been approved to establish an e-commerce marketplace platform.
“The aforesaid restrictions are severe and unambiguous in their intent to ban firms with FDI from engaging in any electronic variant of MBRT, such as inventory-based e-commerce.”
“However, a few global e-commerce businesses operating in India under the pretence of a complicated corporate structure have attempted to circumvent the foregoing FDI restrictions,” it noted.