Traders' body CAIT accuses e-commerce giants of violating FDI norms

India's largest traders' association CAIT on Tuesday said a few multinational e-commerce giants with a heavy arsenal of funding are attempting to flout foreign investment guidelines for the sector and demanded strict enforcement action.

Releasing a whitepaper on the e-commerce policy, the Confederation of All India Traders (CAIT) said e-commerce entities have "structured their relationship as marketplace with sellers in a such a way that they are in a position to control either seller on their platform or the inventory and also escape the scrutiny of the enforcement agencies."

"Under the guise of such control or ownership over sellers, the issue also permeates from being a mere FDI policy violation to also being an anti-competitive conduct," it said. "The mitigating measures and strict action for enforcement of the law in letter and spirit are of paramount importance."

Otherwise, the FDI policy on e-commerce will fail in its objective of catering to the interests of domestic manufacturers, traders, sellers, MSMEs, start-ups and creation of level-playing field in retail, it added.

CAIT said the government policy allows for 100 per cent foreign direct investment (FDI) in single-brand retail trading (SBRT) and B2B cash-and-carry.

However, in the case of multi-brand retail trading (MBRT), FDI up to 51 per cent is allowed only through the government approval route with a large number of conditions to protect the business of MSMEs and small traders.

Since inventory-based e-commerce is nothing but operating a multi-brand retail store through electronic means, no FDI has been allowed in the case of such a model of e-commerce under the FDI policy.

However, to enable the proliferation of technology that can help MSME and kiranas, 100 per cent FDI through the automatic route has been allowed to set up the e-commerce marketplace platform.

This is with a caveat that any entity operating such a technology platform will not own/ control the inventory of any seller on the platform as that will be tantamount to the operation of multi-brand retail trading.

"The above conditions are strict and clear in their intent to prohibit the entities with FDI to carry out any kind of electronic version of MBRT i.E. Inventory-based e-commerce.

"Howsoever, few multinational e-commerce entities with heavy arsenal of funding, operating in India under the guise of the complex business structure have attempted to flout the above FDI conditions," it added.

Speaking at the launch of the whitepaper, CAIT Secretary General Praveen Khandelwal said the document examines the major issues pertaining to lack of platform neutrality, excessive discounting by platforms, unfair usage of data by platforms to again undue competitive advantage and exclusive arrangements and launches.

"...It is important to ensure that e-commerce platforms remain neutral. Giving reference to several international studies and literature on this subject, we have argued that failure to ensure fairness in conducts of e-commerce platforms will lead to a situation where only a few large handful number of platforms will be able to take advantage of the digital boon, while several other stakeholders would be left out," he said.

Therefore, Khandelwal said, the e-commerce policy needs to be inclusive and must ensure collective growth.

Speaking on the occasion, R G Agarwal, chairman of Dhanuka Group, said the e-commerce policy being envisaged must encourage trading of agro-inputs including fertilisers and pesticides via online channels.

This, he said, will help farmers and provide them convenience, which would benefit India's agriculture sector immensely.

"In this quest, government should also device some parameters for products being sold through e-commerce platform so as to ensure the safety of consumers," Agarwal said.

The paper said e-commerce and digital trade in India has seen exponential growth in the past few years in all the streams, be it grocery, electronics or general retail. The industry has expanded from USD 20 billion in 2015 to nearly USD 84 billion in 2021.

It also said although the market size of the e-commerce has grown, the small sellers have not seen the benefits at the same pace. Therefore, it is important to formulate a policy for e-commerce with a focus on all the stakeholders, it added.