Marketplace model used by ecommerce companies not recognised under India’s FDI policy- news of 6th,Jan, 2016

  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 areply late last month in a case filed by brick-and-mortar retailers. The department's position as-sumes 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 businessto-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.

 ET had reported in early December that DIPP was likely to back ecommerce companies, especially as the government is keen to encourage overseas investment. The government is seeking to address the ambiguities related to the sector, said Rohit Bhatiani, director at Deloitte India. "If you look at the global perspective, I think these classes of single-brand multi-brand, commerce exist only in India. Around the world, retail is retail and ideally we have to move with the world, where retail is one  rather than having a lot of classifications," he said. 

 Any new segment tends to create some bit of confusion as an industry segment and with the regulators till the time you become large enough." Over the past year, India's brick-and-mortar retailers have been complaining loudly that foreign-funded ecommerce companies violate FDI norms. The Retailers Association of India and the All India Footwear Manufacturers & Retailers Association have filed separate petitions against the government in the Delhi High Court alleging the circumventing of FDI rules by ecommerce companies.