The ecommerce players in India find themselves in a tough spot again, after the Delhi High Court on Thursday directed the Delhi government to probe 21 ecommerce websites for possible breach of foreign direct investment (FDI) laws.
The petition was filed by advocate Rishi Agrawala on behalf of All India Footwear Manufacturers and Retailers Association (AIFMRA) in July. The list includes biggies like Flipkart and Snapdeal. Although, Amazon India does not figure in the list, is 100% subsidiary Junglee.com is on the list.
The government informed the Delhi high court justice Rajiv Sahai Endlaw that probe is already in motion for six ecommerce companies to identify any FDI breach. He asked the government to expand its probe to all the 21 companies and has granted four weeks for the complete investigation and report filing.
This probe might just open up a can of worms, and disturb the rapidly-growing ecommerce ecosystem in India. This move might also expose the loopholes in the country’s law and the callousness with which money is being invested.
“The government needs to come out with clear laws pertaining to FDI for ecommerce companies. There are a lot of grey areas which leads to complexity in compliance. More importantly, the local retailers need to find other ways to fight competition with online players. Both formats are here to stay, and offer a strong value proposition to consumers and I’m sure viable business models can be created,” said Ashish Taneja, MD & co-founder of growX ventures.
He believes that using the FDI angle to cut down the growth of online players could result in some short term interruptions and nothing else. A level playing field of both online and offline players on FDI should be included.
As per the law, FDI is not permitted in ecommerce. However, most of the ecommerce companies are funded by foreign investors, indicating a breach of FDI laws. Some of them claim to be marketplaces and since FDI is allowed in marketplaces, they deny any breach. Others use complex organisational structuring to channelise their funds, thereby either getting around the law or shroud a potential breach. Many offline retailers accuse these foreign-funded players of portraying themselves as marketplaces but engaging in retail activities and selling directly to customers.
Ashish also believes that delaying the decision on FDI for ecommerce and multi-brand retail is also leading to all these complexities. But online businesses are generating multi-billion dollar in revenues, clearly shows that there is consumer demand and such ventures are here to stay.
Here’s the list of the 21 ecommerce players facing the probe:
8) Fashion and you
15) American Swan
16) Heel and Buckle