India is at the threshold of economic growth and development. In
particular, great promise is seen in the growth of the digital or
e-commerce business in India.
As per the Deloitte ASSOCHAM Report:
"The e-commerce sector in India has become 4 times its
size, from USD 3.8 billion in 2009 to USD 17 billion in 2014,
growing at a CAGR of 37%. The sector is expected to cross the USD
100 billion mark within the next five years, contributing over 4%
to India's GDP."
Incidentally, difference in thinking process of certain segments
and some amount of chaos also prevails. There appears to be a
definite conflict between the modern electronic way and the time
tested "brick and mortar" way of conducting business.
Consider the example of the litigation initiated by a body of brick
and mortar business supported by industry association before the
Delhi High Court (Delhi HC)1. Essentially, the conflict
in this writ petition is regarding the use of electronic platform
for conducting retail sales compared to the brick and mortar shops
selling these products.
The primary contention by the petitioners in the writ petition
is that the so called "marketplace model" is actually
allowing the companies to undertake retail sales to "end
consumers" and hence violating the Foreign Direct Investment
(FDI) norms when such companies receive FDI. The Delhi HC has also
seen prima facie merit in this contention, largely because
some of the State Governments are treating such sales through
marketplaces as sales by retailers and have raised tax on such
marketplace operating entities.
The petitioners in this litigation unfortunately allege that the
Government of India is responsible for this uncertainty, indicating
that there are flaws in the business policy and FDI policy of the
country. It is our view that in this attempt, the petitioners are
failing to realise the constant evolution of the methods of doing
business, especially so in a digitally connected world. The
petitioners also fail to recognise that a policy is expected to
provide a stepping stone or a guideline and cannot cover the entire
gamut of any business.
The counter affidavit filed by the Department of Industrial
Policy and Promotion, Government of India (DIPP) that is also a
respondent in this writ petition, is an attempt to set out its
position so far as the policy making function of DIPP and the
Government of India is concerned.
In its counter affidavit, DIPP has inter-alia stated
The "marketplace model"
is not recognised in FDI Policy;
It is up to the financial
watchdogs to investigate whether there has been any violation of
FDI rules; and
The review of FDI policy is an
on-going process and significant changes are made in the FDI policy
regime from time to time to ensure that India remains an attractive
The provision of brick and mortar shops or office premises is
completely a different subject matter compared to trading in goods
(whether on a wholesale or retail basis). Hence, it may not be
accurate to see both the businesses with the same regulatory
perspective. The writ petition unfortunately tries to mix the two
and blames the Government of India for framing ambiguous policies.
The matter remains sub judice as the Delhi HC is yet to
pronounce its verdict in the matter and also, certain agencies like
the Enforcement Directorate are yet to complete their investigation
of individual cases where a violation could have crept in.
Currently, it is our view that one should wait and watch the
developments before taking any decision in the matter.
However, the counter affidavit filed by the DIPP should for the
time-being assuage the fear in the investor community with respect
to the Government of India's aversion to any particular model
of conducting business. The forensic analysis of such business
being in compliance with the regulations is a different issue, one
that is true for any other sector as well.
1. India Footwear Manufacturers and Retailers Association
(AIFMRA) & Ors. versus Union of India & Ors (W.P. 7479 of
2015) listed before the Hon'ble High Court of Delhi
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