E-marketplaces violating spirit and compliance of Indian laws, says retailers

The Retail Association of India (RAI) has voiced concerns on violation of raising foreign direct investment into non-inventory emarketplaces such as Amazon, Flipkart.

The retail trade industry body said the emarketplaces have demonstrated complete disregard to compliance of the law and continue to operate their businesses like nothing has happened. This despite the fact that, the Department of Industrial Policy and Promotion (DIPP) has come out with clear guidelines on 100% FDI in emarketplaces which disallows foreign investment in inventory-led businesses.

Pranab Barua, business director – apparel and retail business, Aditya Birla Group, the law is saying that you cannot bring FDI into multi-brand retailing and it is there.

"That's blatant violation. It's as simple as that and there is no confusion at all. If FDI is allowed for both offline and online then there is complete freedom for any business access funds. That's the issue we are all raising here," he said.

The RAI leadership is of the view that the so-called emarketplaces are flouting FDI norms in the country and created a non-level playing field. "These emarketplaces have used foreign funds and created a non-level playing field, which is unfair and we want the government to take necessary action in this area," said Kumar Rajagopalan, chief executive officer, RAI.

In fact, it's not just violation of FDI by emarketplaces that is a concern, the retail trade fraternity feels these businesses are evading various taxes leading to loss of revenues to the central and state governments. "There are several such complaints that have come to the government. On of the biggest things that's been happening is that there is a lot of inter-state transaction which are taking place. In such transactions many of the unregistered sellers that are not compliant are failing to deposit taxes and because it is interstate there is no reconciliation which is happening.

"And if you hear the voice of states, many of them are complaining that they are not getting enough tax revenues out of the so-called e-commerce business. In fact, that's one of the reasons why some of the states have gone ahead and taken different type of mechanism to control the flow. Just last week, Gujarat has come up with an e-commerce based taxation, clearly indicating that there are certain set of violations and I think this needs to stop as well," said Rakesh Biyani, director, Future Group.

While the guidelines also clearly said that emarketplaces cannot directly or indirectly influence the price, however there is not much clarity on how this will get implemented. "It's nice to have a policy which says such all that, but the question is how are we going to implement it. And we are only saying that have a effective implementation of what's been outlined in this matter. There are clear examples of these businesses developing methods like discounts or cashback on wallets, gift vouchers etc," said B S Nagesh, chairman, RAI.

Echoing the sentiments, Kishore Biyani, Group CEO, Future Group, said, "Consumers are getting emails about offers and discounts in spite of clear DIPP guidelines. That's absolutely illegal and they cannot do this. It's a clear indication that they are not taking Indian laws seriously."

So what is really stopping the regulators from implementing the guidelines especially when there is no doubt on the fact that there are so many violations already?

"Unfortunately when it comes to implementation of FDI regulations, there is only one agency responsible at the Centre which is the Enforcement Directorate (ED). In the seven – eight months, the ED has conducted second round of investigations and they have not filed any interim report with the court despite being asked to do so several times now and nothing has come it. What we really need to look at is that while ED is the agency doing the ground work, it is the government that has to look into it. Courts can't do their own set of investigations.

"Now that there is clarification and if things don't settle then I am sure that if we approach our in-house legal teams they will come out with certain ideas in terms of re-approaching the courts. I just hope that we don't have to go through that direction as it doesn't make sense that for everything we need to knock on the court's door. I think it is important to ensure that the spirit of the policy is lived up by everybody and violations are neither good for the industry nor the country," said Rakesh Biyani.