While the PM has announced ‘Make in India’ with great fanfare, innovative companies like Uber and Amazon are getting a taste of laws made in India
This is not what prime minister (PM) Narendra Modi had in mind when he launched his high-profile ‘Make in India’ programme on 25th September. Yet, ironically, two multinational companies, Uber and Amazon, seem to have fallen prey to the large swathe of ‘made in India’ regulations that make it very difficult to do business in India.
Uber and Amazon are considered two of the most innovative companies in the world, so it would have been a big surprise if they had not fallen foul of India’s notoriously turgid bureaucracy.
Not only has the Reserve Bank of India (RBI) taken objections to Uber’s payment model and the Karnataka tax authorities with Amazon’s e-commerce model, but, typically, the Enforcement Directorate is also investigating Amazon.
The Department of Revenue Intelligence may also jump in to raise issues of violation of forex laws. That we, the people, find their services excellent, efficient and cost-effective, is of no interest to the rule-makers nor push them to find a quick solution. That is how the ‘Made in India’ legal and enforcement system works.
Uber is a global tax cab company. In order to hire a car, you need to download a phone application, supply credit card details and call a car. Once your ride is booked, the hi-tech system allows you to track the car to your pick-up point. At the end of the journey, your credit card is automatically debited and the invoice mailed to you.
Uber’s clean and easy transactions and aggressive pricing (almost on par with auto-rickshaws for an air-conditioned sedan ride) was growing fast enough to unnerve the competition. They complained to RBI which immediately said that the absence of a two-stage authentication on the credit card transaction and use of a foreign payment gateway violated Indian rules.
In Amazon’s case, the tax authorities in India decided that, since Amazon pre-orders certain popular products and stocks them in its warehouses, it is not an electronic marketplace but a reseller and falls foul of sales tax.
To expect Indian regulators to anticipate and permit an innovative business model is to be out of touch with reality. The two MNCs would have been better advised by their lawyers and consultants, based on the experience of a series of technology companies in the past five years—that they should be prepared for draconian coercive action, including raids and worse, which could shut down their business in India.
Commentators, who argue that India will send the wrong signal by attacking Uber and Amazon, are out of touch with everything that was happening in India in the past 10 years. Yes, we have a new government that promises change, but to expect the elephant to move with the speed of a gazelle is unreal.
In fact, although the PM launched a high wattage ‘Make in India’ campaign just before leaving for the United States, nothing has changed on the ground when it comes to cutting red-tape.
Medium to large companies are forced to spend significant sums of money on legal fees only to deal with the harassment by tax and enforcement agencies. Most of them have legitimate money blocked by endless tax-related litigation. Please notice that the retrospective legislation following the Vodafone case has been left untouched by Modi sarkar and the dispute is still not settled.
Doing business in India means that Uber and Amazon should be prepared for similar skirmishes with numerous municipal and state level regulators and law enforcers, whose rulebook often dates back to the 19th century. Indian businesses have learnt to live with these hassles or to ‘grease’ their way forward—all this adds to the cost and hassles of doing business in India.
Coming back to the Uber case, some commentators have argued that RBI cannot be a regulator, supervisor, investigator and enforcement agency, all rolled into one. But it has combined those roles for over 65 years and Indian banks and companies have lived, and died, by its capricious rules.
Let’s not forget how a sudden change in RBI’s rules in the mid-1990s caused most non-banking finance companies to go belly up leading to thousands of depositors losing hard-earned savings invested with them. Nobody held RBI accountable because that is how India has worked.
Uber gives dignity to millions of Indians who, in the absence of adequate public transport, have to beg and plead and give in to extortion by auto-rickshaws and taxi-drivers. Amazon delivers products to your doorstep cheaper and faster. All this cuts no ice with Indian lawmakers or regulators. They are not obliged to look for a solution that helps people; they’d rather stick to old rules—even as those rules are violated with impunity.
But there is a slight chance that things may be different this time. Public pressure for better services, conveyed directly to the PM via social media, could make a difference.
Mr Modi’s own experience of using technology innovatively to reach the people should make him sympathetic to innovators. I believe that only a direct request from the PM will push government agencies to re-work rules quickly so that people benefit from innovation.
It is RBI’s stated policy to push people to switch from cash and cheque to electronic transactions. Based on this, Uber’s payment process should have been held up as the model for others to follow. But there is a big gap between RBI’s stated goals and its actions.
According to media reports, Uber is working at integrating a digital-wallet into its payment process through a tie-up with a couple of mobile payment gateways. Will this work? Remember, in the eight years since it closed down the Times of Money’s e-wallet or stored value payment card, we have yet to see an effective e-wallet with low transaction costs attract sizeable customers in India.
RBI has also been impervious to consumer protests about ‘convenience charges’ levied on electronic transactions. A workable e-wallet system, with low transaction charges, is the ideal solution for small-value online transactions to buy movie tickets, books, flowers or pay taxi fares, where the value at risk is low and there is no need for two-stage authentication. But, there again, RBI is worried that these low-denomination transactions will be used for gambling, lottery tickets and worse, to launder money.
But e-commerce in India is a $2.3billion business, which is growing at a scorching pace and companies will keep innovating for a piece of the action. While existing e-wallets offered by some banks are tedious, worth the effort only for high denomination transactions, new ones are being announced every day.
The Indian Railway Catering and Tourism Corporation (IRCTC) has launched an e-wallet which is structured as a rolling-deposit scheme where customers can maintain an account with IRCTC for e-bookings, which is topped up from time to time. This is to reduce the current hassles and risk involved in using credit and debit cards on the IRCTC system. The Citrus Pay app is another one that allows users to load value on an e-wallet from a credit or debit card.
It remains to be seen if Uber will find its way around RBI regulations or we will see the dawn of a new era, where the ‘Make in India’ is not just a slogan but a signal to regulators, policy-makers and investigation agencies to also move with the times to help and facilitate businesses that consumers want.
(Sucheta Dalal is the managing editor of Moneylife. She was awarded the Padma Shri in 2006 for her outstanding contribution to journalism. She can be reached at [email protected]
Tamil Nadu Chief Minister J Jayalalithaa on Saturday was sentenced to four year imprisonment and fined Rs100 crore in the 18-year-old disproportionate assets case. The verdict by a special court in Bangalore raises questions over her continuance on the post and the big question is who will head the government in the absence of Jayalalithaa. She ceases to be MLA and CM. She will go to jail tonight.
The conviction of the AIADMK supremo has come as a rude shock to the ruling party, casting a doubt over the 66 year-old leader’s political future ahead of the 2016 assembly polls.
She had to step down as Chief Minister in 2001 when Supreme Court observed that she cannot hold office, as she was earlier sentenced in two corruption cases in 2000, which, however, was set aside later.
Today’s verdict has come as a jolt to the ruling AIADMK as it had been enjoying a winning spree in all elections held since April 2011, when the party trounced DMK.
The party had put up a stellar performance in the Lok Sabha polls this year, winning 37 of the 39 states in the state, though its hopes of a pivot role in the Centre failed with the BJP mustering majority on its own.
However, there is no threat to the party government as AIADMK has a solid majority of 150 seats in the 234-member Assembly.
She had been acquitted in several other cases filed during the DMK regime.
After the apex court’s observation in 2001 that she cannot continue in office, Jayalalithaa had made her loyal aide and then not-so-known face O Panneerselvam as her successor to power.
After getting absolved of the charges in the Madras High Court, she had contested from Andipatti constituency and became the Chief Minister again in 2002.
Panneerselvam is also one of the names presently doing the rounds in AIADMK circles as one of the probables to take over as the next Chief Minister if Jayalalithaa has to resign.
The others being Transport Minister V Senthil Balaji and Electricity Minister Natham R Viswanathan and even former Chief Secretary and Consultant to the state government, Sheela Balakrishnan.