eCommerce Confusion in India

Battle in India between the eCommerce marketplaces and he traditional bricks-and-mortar retailers continues

Economic Times reports that the Department of Industrial Policy and Promotion (DIPP), the gatekeeper for foreign investment in India, has told the Delhi High Court that the marketplace model used by ecommerce companies is "not recognised" in the country's foreign direct investment (FDI) policy. The department has also suggested that it's up to the financial watchdogs to investigate whether there has been any violation of FDI rules by online retailers. 

DIPP is "mandated only with formulation of FDI policy", it said in a reply late last month in a case filed by brick-and-mortar retailers. The department's position assumes significance as the country's biggest online retailers such as Amazon India, Flipkart and Snapdeal function as marketplaces — platforms linking buyers with sellers — because the rules don't allow overseas investment in entities that sell directly to consumers. 

"FDI is a capital account transaction and thus any violation of FDI regulations are covered by penal provisions of FEMA (Foreign Exchange Management Act)," DIPP told the high court. It also emphasised that the country's regulations "unambiguously" do not permit foreign investment in business-to-consumer or B2C ecommerce and said India only allows 100% overseas capital in business-to-business or B2B ventures. Traditional retailers say the marketplace model is merely a ruse to get around this stipulation.

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