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E-commerce firms bypassing foreign investment norms: Reliance to Govt

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Billionaire Mukesh Ambani’s Reliance Retail on Thursday told the government that complex legal structures have been used by some firms to bypass the country’s e-commerce rules which from the very beginning do not allow foreign capital in the inventory-based model. At a meeting called by the commerce ministry on allegations that foreign online retailers created complex structures to bypass foreign investment rules and damage small traders, Amazon urged the government not to issue any clarification until investigations into its business practices had been concluded, sources said.

At the meeting, Reliance Retail’s representatives said the Indian e-commerce policy does not allow foreign capital in the inventory-based model and foreign investment is allowed only in pure technical infrastructure/ platform that facilitates the meeting of buyer with sellers.

Such platforms cannot act as sellers themselves, directly or indirectly, they said, adding some foreign companies have used complex legal structures to exploit loopholes or used creative interpretation of the policy that violate the policy in spirit.

Such legal creativity includes creating a multi-level company structure to hide the real relationship between the marketplace entity and the sellers, they told the meeting.

According to sources, they alleged that these marketplace entities are engaged in the control of inventory and are their largest sellers.

The continued violation creates the doubts about legal sanctity of the policy especially in the mind of new e-commerce players and so it is imperative that the rules are clarified to an extent that these are not subject to such creative interpretation, the officials told the meeting.

Sources said they suggested that the scope of group company be widened to include affiliate and associate companies and misuse of B2B e-commerce by either controlling the inventory or providing deep discounts through selected sellers by the way of capital dumping be prevented.

Amazon officials, on the other hand, said any clarification in the FDI policy will entail unemployment, ridicule India’s foreign investment policy and impact consumers.

They said any claims or complaints of violation can be investigated by the relevant agencies and so no clarification is merited as of now, sources said.

Reached for comments, an Amazon spokesperson welcomed industry consultations initiated by the DPIIT and the opportunity for a constructive and continuing dialogue with the government.

“We reiterated our strong, long-term commitment to India as we continue to onboard hundreds of thousands of MSMEs, building infrastructure and technology to empower and scale these local businesses,” the spoksperson said.

“The FDI policy needs to be stable and predictable for investor confidence as any disruption in business will impact millions of livelihoods and jobs, have negative consequences on downstream suppliers and service providers including MSMEs, startups and offline stores which have barely recovered from the setback of COVID,” the spokesperson added.

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