Several e-commerce firms that operate in the B2C (business-to-consumer) space but whose affiliates in the B2B space have foreign direct investment are likely to be in trouble going by a statement made by commerce and industry minister Nirmala Sitharaman.
“FDI is banned in multi-brand retail and the same applies to e-commerce also,” she said at the Indian Express Group’s Idea Exchange programme. The minister’s clarification comes at a time when authorities suspect that many e-commerce firms have structured their business in such a way that foreign capital coming to their wholesale business indirectly supports the retail e-commerce business. Recent reports said some of the leading e-commerce companies are being probed by the Enforcement Directorate for alleged violations of foreign exchange regulations.
India permits 100% FDI in B2B e-commerce activities (as in wholesale trade) but foreign investment is not allowed in B2C e-commerce companies. But some foreign firms are present in the country through what is called the marketplace model. Under this model, they do not retail any products but offers a platform for consumers to place orders, which are then retailed by domestic retailers. This is perfectly legal.
However, there are some domestic B2C e-commerce companies that also operate through the marketplace model but allegedly use their other FDI-funded ventures in the B2B space for retail sales. The minister’s reiteration of the policy would mean that such companies would now face the music.
On the ongoing review of free trade agreements (FTAs), Sitharaman said this was not being done with a view to scrap them but to ensure that Indian manufacturers optimally benefit from these pacts.
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Stating that India’s FTA partner countries may be benefiting more from these pacts than India, she said the government was therefore looking at some “remedial measures”, which could lead to correcting inverted duties as in the recent Union Budget. The reviews could also allow more careful formulation of future FTAs.
The FTAs under review are those with Asean, Japan, South Korea and Malaysia.
India is also planning comprehensive bilateral trade and investment pacts with many countries and blocs including Canada, the European Union and Australia.
Portals such as snapdeal.com, yebhi.com, myntra.com, jabong.com, firstcry.com and lenskart.com are among the major players in India’s roughly $12-billion e-commerce industry that is growing at about 34% a year. According to an investment tracking agency, capital flow into India’s e-commerce firms rose 258% to $805 million in 2013-14 from $224.85 million a year ago, indicating the high capital requirement of the fledgling industry.
Sitharaman denied that India was indulging in political brinkmanship at the World Trade Organisation when its concerns on food security resulted in the failure of talks on trade facilitation agreement. She said the Bali Ministerial Declaration was an imperfect agreement that did not guarantee a permanent solution to the issue of public stockholding of foodgrains by 2017 when the peace clause was to expire.
“Public stockholding for food security purposes is a country’s sovereign right. While we are taking measures to reform our public distribution system and we respect our commitments at the WTO, our food security measure cannot be driven solely by WTO. Many countries including China have procurement programmes for food security purposes. Food security and public stockholding are interlinked, and India will raise this issue at every available forum including G-20,” she said.
On the issue of special economic zones, Sitharaman said that the finance minister was receptive to the idea of withdrawing DDT and MAT on these zones, but there was a valid debate on why such sops should not be available to units outside SEZs.
fe Bureau | The Financial Express