‘Marketplace model not recognised, but no violation by online sellers’ – DIPP

In a development that can cause online marketplaces to fret, the Department of Industrial Policy and Promotion (DIPP) has clarified that Foreign Direct Investment (FDI) policy does not recognise the marketplace model.

The DIPP has stated to the Delhi High Court that, “FDI is a capital account transaction and thus any violation of FDI regulations are covered by penal provisions of FEMA (Foreign Exchange Management Act).”

The DIPP has also categorically stated that the country’s regulations do not permit foreign investment in business to consumer companies.

Disgruntled physical stores maintain law violation by online marketplaces

Conventional brick and mortar stores are being unsettled by the activities of online stores. IOS had earlier reported how the All India Footwear Manufacturers and Retailers Association had complained in the Delhi HC about legal discrepancies in the activities of online stores. The complainants had alleged misuse of the FDI.

The retailers at brick and mortar stores maintain that the marketplace model is only a namesake; the online marketplaces are attempting to bypass the law.

While ecommerce companies have maintained that their activities are well within the law, the Delhi HC has ordered the Enforcement Directorate to conduct an investigation to check if any malpractices are taking place.

What violation?

The DIPP has made a statement in the court seeking to dismiss the petition filed by the physical retailers.

In a statement signed by its under-secretary, Mr. RD Diwakar, the DIPP says, “The petitioners have failed to show that the FDI policy is arbitrary, mala fide or ultra vires of the constitution.”

Not a surprising point of view, considering that foreign money is sweet music to the economy. The DIPP has stated that it is “mindful of the concerns raised by the petitioners,” and has held meetings with the stakeholders.