Indian law doesn’t allow foreign investments in retail e-commerce or multi-brand retail. However, it allows selling via marketplace which acts as a medium for seller and buyer. And while that sounds pretty much straight-forward, Delhi High Court has now issued a notice to the Central Government asking to clearly define an FDI policy for the rather controversial e-commerce business in India.
The Government of India hasn’t decided what the term online marketplace mean and what it constitutes in retail and wholesale trading on such platforms.
Seeking a reply from the government on this issues, a petition has been filed in Delhi High Court from a body which is representing brick-and-mortar stores. They are claiming that many online marketplaces are involved in retail business and that foreign funding is helping them offer deep discounts of the sort that traditional retailers can’t match.
The petition has been filed by the All India Footwear Manufacturers and Retailers Association (AIFMRA). In a reply to that petition, justice Rajiv Sahai Endlaw said there was a “prima facie case” of violation of foreign direct investment (FDI) rules.
Thus, he has issued a notice to the government and has directed it to file an affidavit within two weeks. He said that the transactions of e-tailers are taxed by a state as a sale means that they are in a B2C business, which is a violation of the present FDI policy.
India allows 51% FDI in multi-brand retailing. However, that comes with a lots of conditions including 30% mandatory local sourcing and $100 million upfront investment.
In May, RAI, an industry body representing over 1,000 retailers, including Shoppers Stop, Reliance Retail and the Future Group, etc. filed a writ petition against the government asking for a level playing field in terms of foreign investment.
As online eCommerce websites like Flipkart and Snapdeal have heavy backing from Venture Capitalists, they offer heavy discounts on products which the physical store owners cannot provide. Thus, the retailers have asked Government to create and simplify the FDI policy. They are arguing that the word “retailer” cannot have different meaning for online businesses and offline businesses.
The petition filed in the court states that (via ET)
the e-commerce entities are taking undue advantage of the footwear retailers and manufacturers present in the physical world as they are giving discounts on the very products being sold by the members of the Petitioner Association which leads a consumer to only utilize the Petitioner’s shop as footwear trial room or showrooms.
They also claimed that the FDI is being illegally utilized by the e-commerce companies to warp the level playing field in the direct violation of Article 21 of Constitution of India.
According to Think India, The e-commerce market share is expected to jump from 2% to 11% in 2019, while the share of physical retail market is expected to fall from 17% to 13%.