RBI, ED to probe if e-tailers flouted FDI norms

02 Nov '15

2 min read

There may be trouble ahead for e-commerce majors such as Flipkart, Snapdeal and Amazon with the Commerce Ministry requesting the Enforcement Directorate (ED) and the Reserve Bank of India to examine whether the e-tailers violated foreign direct investment (FDI) rules by engaging in business-to-consumers (B2C) activity, according to media reports.

The Commerce Ministry decision comes on the heels of a complaint filed by traders' body Confederation of All India Traders (CAIT) which alleged that the e-commerce players circumvented law and engaged in B2C activity while 100 per cent FDI is allowed only in the business-to-business (B2B) segment.

“It's requested that the matter may be examined and appropriate action may be taken,” said the Commerce Ministry said in a letter addressed to the ED and the RBI. CAIT had complained that stated that the three e-commerce majors, which recently conducted mega sales, solicited the general public through a multi-media advertisement blitz.

“Since they have received foreign investment, they are allowed to undertake B2B e-commerce activity and not B2C. The said advertisements addressed to the public in general tantamount to retail trading,” CAIT said in its complaint to the government.

CAIT had alleged that e-commerce companies have solicit general public into their respective sales by big advertisement campaign on print, electronic and social media.

CAIT further said that these companies claims to be a marketplace and therefore can provide only a technology platform for the sellers and not offer 'sale' or 'discounts'.

The traders' body also argued that that since ownership of inventory is not held by the e-commerce companies, they cannot offer sale or discounts in totality on their portals. “Doing so establishes that they are not marketplace and as such openly flout FDI policy,” it added. CAIT appealed to the government to restrict Flipkart, Amazaon and Snapdeal from conducting such sales and take immediate steps against them for violating the Consolidated FDI Policy. (SH)

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