There's nothing called a mktplace

1. Govt to Delhi HC: There's
Nothing called a
Mktplace
FRESH STAND DIPP says model not recognised
under India's FDI policy, puts onus to probe
possible violations on financial watchdogs

2. Contd…
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 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.

3. Contd…
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 Bha
tiani, 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.

4. Contd…
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. This is “actionable“ under money laundering rules, the shoe
retailers said in their petition.
The ecommerce companies have consistently said that they operate within
the law.
The court has already ordered the Enforcement Directorate to investigate
whether ecommerce companies, including Snapdeal, Jabong, Myntra and
Amazon-owned Junglee, have flouted FDI rules. DIPP maintained in its
response to case filed by the shoe retailers that India's FDI policy was
“transparent and predictable“ and that the rules are an effective regulatory
mechanism.

5. Contd…
The DIPP statement, signed by undersecretary RD Diwakar, pressed the court
to dismiss the case. “The petitioners have failed to show that the FDI policy
is arbitrary, mala fide or ultra vires of the constitution,“ it said.
It also asked why the ecommerce companies haven't been made party to the
ongoing case. “As specific allegations averments have been made with regard
to their manner of functioning and any decision in the present writ is bound
to have an adverse impact on them, they are necessary parties to the
present petition,“ DIPP said in its reply to the court.
The government agency said it is “mindful of the concerns raised by the
petitioners“ and said it has held meetings with stakeholders.

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