Received multiple complaints against e-commerce firms for violation of FDI: Govt

The Ministry of Commerce and Industry in a reply in Rajya Sabha said that the government had received multiple complaints from traders and industry associations against marketplace e-commerce entities for violation of Foreign Direct Investment (FDI) policy. 

“It has been alleged that certain marketplace e-commerce entities have created complex ownership structures and are engaging in inventory-based model of e-commerce through controlled vendors/preferred sellers,” said the ministry, in reply to a question AITC MP Derek O’Brien.

The FDI Policy states that FDI is a capital account transaction and hence any violation of its regulations will be covered by the penal provisions of Foreign Exchange Management Act (FEMA). FEMA and ED are the authorities for the enforcement of FEMA. 

“The government reviews the FDI policy on an ongoing basis to ensure that India remains an attractive and investor friendly destination. Changes are made in the policy after intensive consultations with all stakeholders including apex industry chambers, associations, representatives of industries/groups and other organisations and taking into consideration their views/comments and suggestions,” the ministry said.

Explaining the mechanism for the implementation of the FDI Policy in e-commerce, the ministry said that as per the policy, e-commerce entities are permitted to engage only in Business-to-Business (B2B) e-commerce and not in Business-to-Consumer (B2C) e-commerce. “Further, 100 per cent FDI under the automatic route is permitted in the marketplace model of e-commerce. FDI is not permitted in the inventory-based model of e-commerce,” it said. 

The policy also mandates e-commerce marketplaces with FDI to obtain and maintain a report of statutory auditor by September 30 every year for the preceding financial year, confirming the compliance of e-commerce guidelines.

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