India’s top retailers’ lobby plans to move the finance ministry to force e-commerce firms to comply with recent rules on online marketplaces.
The Retailers’ Association of India (RAI), which recently met officials at the department of industry policy and promotion (DIPP), has now requested a meeting with finance ministry officials, the association’s chief executive officer Kumar Rajagopalan said.
While DIPP which announced the new e-commerce policy on 29 March comes under the commerce ministry, the Enforcement Directorate which can make etailers comply comes under the finance ministry.
“The Enforcement Directorate needs to take action against everyone who is flouting the online marketplace law,” Rajagopalan said.
“The DIPP does not encourage back door entry into retail and has provided the clarifications for marketplace, but its enforcement and execution responsibility falls under the finance ministry,” said Rajagopalan, adding he hopes to meet finance ministry officials after the conclusion of the ongoing parliament session.
Retailers have taken up the matter since not much has changed in the operating model of etailers since the policy was announced. According to Rajagopalan, etailers are still offering discounts, they are not making the disclosures regarding sellers on their ecommerce portals, many have private brands and a majority of their revenues comes from one vendor, none of which is not allowed under the marketplace policy.
Under the marketplace model, ecommerce companies are simply a platform connecting buyers and sellers. Moreover, no one company can contribute to more than 25% of the business for a marketplace. They are also barred from influencing prices directly or indirectly.
The FDI policy covers a wide range of internet companies including online travel agencies, cab-hailing services, hotel start-ups, home services providers, food ordering and grocery delivery apps.
In November last year, The Delhi High Court ordered the Enforcement Directorate (ED) to look into 21 ecommerce companies including etailers like Flipkart, Snapdeal, Amazon and Jabong to see if they have flouted the country’s FDI rules, in response to a petition filed by the All India Footwear Manufacturers & Retailers Association’s against the Union government in August.
However, the ED never submitted the report and at its latest hearing on Thursday, the government told the Delhi high court that following its clarifications on online marketplaces on 29 March, the petition filed by the All India Footwear Manufacturers and Retailers Association became infructuous, additional solicitor general Sanjay Jain said.
The case is expected to come up for hearing on 23 May as the footwear association has asked for time to file its grievances regarding the press note.
Ironically, brick-and-mortar retailers have been asking the government to allow FDI in multi-brand retail for over five years. In 2012, the then Congress-led United Progressive Alliance government allowed 51% FDI investment in physical retailers that sell more than one brand or multi-brand retail in some cities, subject to the approval of the state governments and some conditions regarding sourcing.
While FDI is restricted in multi-brand brick and mortar retail companies, ecommerce companies like Flipkart and Snapdeal have attracted more than $9 billion in investments from venture capitalists in the past two years, boosting their growth.
The exponential growth in the past year had led to predictions that the share of e-commerce in the overall retail market will increase from 2% in 2014 to 11% in 2019, while the share of organized brick-and-mortar retail is expected to fall from 17% to 13%, according to a February 2015 report by property consultant Knight Frank India Pvt. Ltd and RAI.
However, in the past six months, etailers have been struggling to raise fresh rounds of funds as investors turn cautious over unproven business models, besides a mix of global macroeconomic factors such as a slowdown in China. In the past three months, three investors including Morgan Stanley Institutional Fund Trust have slashed the value of their holdings in Flipkart.
“We will see consolidation taking place online. The valuations and discounts is not sustainable,” said Govind Shrikhande, managing director, Shoppers Stop Ltd, which runs the department store chain by the same name while sharing that etailers have to change their models as per the new law but they haven’t yet done so. D.J. Reader Womens JerseyShare This