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E-COMMERCE COMPANIES IN TROUBLE IF FDI POLICY NOT FOLLOWED

The Commerce & Industries Minister Piyush Goyal made its stand clear on the question of e-commerce companies that are not working within the FDI policy by stating that they will have to pay a heavy consequence if a loophole is found in the policy execution. The details into the matter can be looked upon through the article.

 

BACKGROUND

The issue has gained momentum when the government received huge number of complaints against the electronic-commerce companies. The enforcement directorate has been looking forward to a clear-cut investigation in this manner as informed by it in the parliament after the persual of it by the concerned ministry in 2020.

 

MINISTER’S TAKE

The concerned minister Piyush Goyal has stated that there are certain companies who are in questionable area as they have not followed the provisions of Foreign Exchange Management Act 1999.

Hardeep Singh Puri; Ministry Of State for the industry & commerce said it very clearly that India has imported goods from 5 countries in the last country which are the China, US, UAE, Saudi Arabia and Iraq.

 

EXPECTED LOOPHOLES

The confederation of all India Traders (CAIT) has raised a complaint against the e-commerce company Flipkart for using the policy to give discounts through sellers.

They also raised a suspicion on the Rs. 1500 crore deal finalized between Aditya Birla Fashion & Retail & Flipkart. The planning is to make the Birla venture a preferred seller on the platforms which is not allowed as per the policy.

 

WHAT IS FEMA??

Foreign Exchange Management Act 1999 is the law created under the act number 42 replacing the foreign exchange regulation act (FERA). The major objectives of this act are :

  • To look after the law relating to foreign exchange in order to facilitate foreign trade.
  • To promote development of foreign exchange markets in the country.

 

This act gives the authority to the central bank & government to make rules in this area in sync with the objectives of trade policy. It controls the entire mechanism of contexts like:

 

Current & Capital Account Transactions Remittances
Transfer of foreign security Deposit Regulations
Foreign currency accounts Cross Border Merger
Export of goods & services Realisation of foreign exchange

 

These regulations are also applicable to e-commerce companies. 100% FDI according to the automatic route is allowed but it is only for business to business not for business to commerce category and that also for marketplace models not inventory models.

 

Rules are made to things work according to the set framework and in the set domain are per the required parameters.

This statement applies to the business industry in a steady manner.

When the doors opened in 1991; they were constantly watched upon by the regulations made in order to foster healthy competition and growth of the countries. Therefore; when such instances occur they turn out to be a warning for the e-commerce platforms.

Undoubtedly; they hold a significant market share but that does not mean you have the discretion to exploit it. Make sure that you are within the premises given to you. If not thought upon then it will turn out to be more complicated once it enters the legal fashion.

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