Indian ecommerce road bumpy as regulatory issues reverberate

Following a petition from the All-India Footwear Manufacturers and Retailers Association, the court ordered the Enforcement Directorate, a government agency, to investigate alleged violations of Indias rules on foreign direct investment (FDI) by the countrys ecommerce firms, including Snapdeal and Myntra, warc.com reports.

The Enforcement Directorate has been told to report by 21 December, 2015 and, if the High Court agrees that FDI rules have been flouted, Indias ecommerce players could face a threat to their investment and expansion plans, the Financial Times reported, the source cites.

A similar lawsuit was filed earlier this year by Retailers Association of India, which represents major chains such as Future Group and Shoppers Stop. Ecommerce groups have been accused of trying to circumvent FDI regulations by calling themselves marketplaces. India does not allow FDI in any B2C ecommerce ventures, although foreign investment is permitted in B2B platforms.

Amazon, Flipkart, Snapdeal and others argue that they are merely technology platforms enabling Indian vendors to sell, but bricks-and-mortar retailers dispute this, saying there are breaches of the Foreign Exchange Management Act. While the ecommerce groups insist they comply with the law, industry experts have warned that it is open to interpretation and the courts may not agree.

In terms of what the books of ecommerce companies show, it is very difficult to say they are not a pure technology company, said Anurag Mathur, a partner at PwC India, the source cites. In spirit, though, you could say they are not fully in the spirit of the law, he added. It will be very, very open for the court to interpret.

Much will be at stake once the Enforcement Directorate reports by the end of 2015 and the High Court comes to its decision. Amazon, which had already announced an additional USD 2 billion investment in India, was reported earlier in 2015 to be planning to invest as much as USD 5 billion while Snapdeal, its Indian rival, was said to be raising USD 500 million in investment from Alibaba, the Chinese ecommerce company.