Vendor Association Alleges Violation of FDI norms and FRTP by Big E-commerce Players
The Indian government has clarified that the foreign direct investment (FDI) policy on e-commerce does not allow foreign investments into multi-brand retail. However, the All India Online Vendors Association (AIOVA), while alleging violation of government FDI norms on by large ecommerce companies, has asked the government tighten its policies and reprimand such erring players.
In a statement, the department of industrial policy and promotion (DIPP) had assured that FDI in allowed only in the business-to-business (B2B) e-commerce segment and not in the business-to-consumer (B2C) segment, which in effect is the multi-brand retail or the inventory-based e-commerce model.
"Certain averments suggest that Press Note 3/2016 had covertly allowed multi-brand retail trading. Such a view is completely contrary to the specific provisions of Press Note 3/2016, which unambiguously provided that FDI is not permitted in inventory based model of e-commerce which amounts to multi-brand retail," the statement said.
It further said as FDI is allowed only in B2B e-commerce, an e-commerce entity providing marketplace will not, directly or indirectly, influence the sale price of goods or services, which also renders such business as an inventory based model.
However, in a series of tweets, the AIOVA pointed out how big players like BigBasket, Amazon, Grofers and Flipkart, among others violate the FDI policy on e-commerce using the food retail trading policy (FRTP) route.
For example, the Association says, BigBasket is a subsidiary of Supermarket Grocery Supplies Pvt Ltd (SGS), which in turn is a wholesale company with FDI. "Even though SGS is owner of BigBasket's trademarks, the actual site or marketplace of the e-commerce business, has been licensed to Innovative Retail Concepts Pvt Ltd (IRC), which has two directors and authorised capital of only Rs2 crore," it added.
AIOVA says, "IRC has a B2C turnover of Rs1300 crore, which is less than the Rs1500 crore of SGS. It seems IRC is not working as a marketplace but as a retailer itself. Here a clear loss can be seen where IRC is making loss on its purchases for SGS. Both companies have declared a combined loss of 500 crores. It seems IRC entire capital is wiped out. Still it is doing business."
As per food retail permission, SGS can retail food products that are made in India. "They need to keep the inventory and accounting separate from other business. But wait, SGS is nowhere involved in B2C. Then what is the need of food retail license?" the Association asks.
"This is a case of a wholesale company being funded through FDI, which controls an Indian marketplace and using its capital to deep discount in food and other household items. Their business model can soon be adopted by other companies and evade DIPP press notes completely," AIOVA says.
Talking about Grofers, the Vendor Association, says, this e-commerce player was owned by Locodel Solutions Pvt Ltd, which in FY2016 was transferred to Grofers India Pvt Ltd (GIPL). Grofers India received approval from the DIPP for retailing food products, which allowed the company to sell food made in India.
Quoting a report from the Mint, the Vendor Association alleges violation of DIPP norms by Grofers on the same line of Flipkart, by creating four shell companies, one being a B2B company and three shell B2C companies to sell goods on the marketplace.
According to AIOVA, Grofers India had committed $25 million for engaging in food retail. "Within one year of receiving the license, their Singapore based holding company received funding of about $500 million. The holding company infused Rs100 crore into GIPL at a premium Rs11 lakh per share in October 2017," it added.
"This raises a question on the food retail license given to GIPL. The license clearly mandates them to keep food retail and other operations separate. And the entity cannot retail anything apart from Made in India Food. Albinder Dhindsa from Grofers claims to have 2000 sellers on marketplace," the Vendor Association says.
AIOVA also points out how after failing to satisfy DIPP norms, Amazon went ahead with FRT in Cloudtail India Pvt Ltd. It says, Amazon Retail India Pvt Ltd, was the third company to receive nod from DIPP for food retail, and had committed an investment of Rs3500 crore. However, Amazon's plan got foiled when DIPP asked to maintain separate resources for website and FRTP, it added.
The Vendor Association says, "FRTP imposed proper restrictions on these companies so that they don’t abuse the license to dilute the marketplace. However, DIPP failed to check other circumventions. While these companies can still open stores and carry out FRTP, they are unwilling to fulfil backend infrastructure investment or other conditions stated in their proposal to get the FRTP license knowing very well that they can carry out FRTP by creating 'pseudo marketplaces' and shell companies."
In the statement, the DIPP also noted that despite the regulations not allowing an e-commerce player to influence pricing of products the government continued to receive complaints that certain marketplace platforms violated the policy and indirectly engaged in inventory-based model.
"An e-commerce platform operating an inventory based model does not only violate the FDI policy on e-commerce but also circumvents the FDI policy restrictions on multi-brand retail trading," the statement stressed.
The Commerce Ministry in December revised the FDI policy for e-commerce players whereby it barred online retail firms like Amazon and Flipkart from selling products of companies in which they have stakes. It also prohibited e-tailers from mandating any company to sell its products exclusively on its platform only.