The Department for Promotion of Industry and Internal Trade (DPIIT) is to hold a host of meetings with industry and trader associations, this month, in regards to foreign direct investment (FDI) in the e-commerce sector.
Last month, the Commerce and Industry Minister Piyush Goyal had said the government was considering coming out with certain clarifications to ensure that the e-commerce works in the “true spirit” of the law and rules. He had stated that there are certain complaints from consumers and small retailers about certain practices of the e-commerce companies, which are under investigation.
A senior government official, in January, had said that the 25% definition is not working and blatant violations are taking place which is not in line with the spirit of the law. “We want to give clarity once for all. There is a scope for improving the current framework.” Another official pointed out that when B2C e-commerce is not allowed, these companies have circumvented the rules setting up affiliates. “We want to ensure a level playing field for all,” he said.
Praveen Khandelwal, CAIT Secretary General, about the March 17 meeting, said they would seek early issuance of the clarifications. “We are awaiting those clarifications. In the meeting, we will impress upon the government to bring those clarifications as e-commerce players are violating FDI rule,” he said.
Loopholes in FDI
An expert on FDI issues told Times Now that while many loopholes have been plugged over the years, marketplaces have come up with new structures to sidestep the rules such as having their own brands, third party manufacturing, curate more brands, and increase margins that makes many rules redundant.
Analysts highlight that while an international retailer could circumvent India’s FDI policy by associating itself with an Indian financial investor, genuine Indian retailers receiving investments from financial investors, who have no direct interest in retail trade and are thus portfolio investors seeking large return on their investments, were forced to change their operating model. The intent of the first is to circumvent the law, while that of the latter is to secure finance to their operations. While the former strengthens the position of the foreign retailer, the latter constrains the growth of the Indian retailer.
In simple words, the policy failed to distinguish between foreign retailers and foreign portfolio investors. Furthermore, there is considerable inconsistency in treating foreign portfolio investors.