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CAIT wants govt to stall Aditya Birla Fashion Retail’s deal with Flipkart over alleged FDI violations

A Flipkart delivery box with a Flipkart sticker

Traders body and pressure group CAIT has once again urged the Commerce Ministry to intervene in an e-commerce deal, citing violations of India’s FDI regulations. This time, the Confederation of all India Traders has taken issue with Aditya Birla Fashion Retail’s sale of a 7.8% stake to the Flipkart Group for ₹1,500 crore. 

Announced on October 23, the ABFRL said part of the deal is to further extend existing B2B arrangements with Flipkart India Private Ltd, by entering into a “commercial agreement in relation to sale and distribution of various brands of the company”. This has irked CAIT, which said this is a “clear intent” to make ABFRL a preferred seller on Flipkart’s marketplaces, which strictly violates government policy. 

“The FDI policy clearly prohibits foreign company to venture in any forms of multi-brand retail trading including through e-commerce by having an equity interest in the sellers on the market-platform, or directly/indirectly controlling their inventory through side agreements, or under the garb of B2B e-commerce,” CAIT said in a public letter to Piyush Goyal, whose ministry oversees foreign investments. 

India’s FDI policy for e-commerce, the latest version of which is Press Note 2 (2018), allows 100% FDI in B2B ecommerce, i.e. the marketplace model. However, e-commerce companies operating marketplaces have to meet certain conditions. Among other things, they cannot exercise ownership over any inventory sold on their marketplace, or influence the sale of goods directly or indirectly. Any seller in which the marketplace itself has an equity stake cannot sell in the marketplace. For instance, Amazon had to restructure Cloudtail’s ownership structure, to reduce its holding to 24% after a the Press Note 2 (2018) became effective . 

CAIT wants the government to prohibit ABFRL from directly or indirectly selling inventory on Flipkart, and only permit the sale with an undertaking that ABFRL will not do so. “However, being encouraged with violations of these provisions by various e-commerce players in the past and one company of the deal being a habitual offender of policy and again the same unethical practices and violation of FDI policy is about to be committed by Flipkart and ABFRL,” CAIT said. 

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CAIT speaks up against Chinese backing of Indian startups, content regulation

Claiming to represent 70 million (7 crore) traders, CAIT has consistently raised voices against e-commerce companies and their “inadequate” regulation. At least since 2016, CAIT has opposed e-commerce entities for alleged FDI violations. CAIT describes itself as being concerned with retail trade, GST issues, and FDI in e-commerce and retail trade. 

In 2016, it complained to the then DIPP about alleged FDI violations by Flipkart. Ever since, it has opposed Walmart’s acquisition of Flipkart, then Amazon’s takeover of Aditya Birla Retail’s More Supermarket chain, and generally demanded stricter e-commerce regulations, including the need for a dedicated e-commerce policy and regulator. It had even initiated legal action at the NCLAT in an attempt to block the Walmart-Flipkart deal. Praveen Khandelwal, CAIT’s general-secretary and its most visible face, had last year accused e-commerce companies of stalling policies regulating them and complained that the most popular sellers on e-commerce marketplace are offshoots of the marketplaces themselves.

CAIT’s opposition of e-commerce companies, the largest of which are Amazon and Flipkart that are both owned by foreign companies, was colluded with speaking up for “local” or “Indian” traders. 

In recent months, it has expanded its scope beyond e-commerce or retail, speaking up against Chinese investments in over a hundred Indian startups, many of which had little or nothing to do with e-commerce or retail trade. Rallying against China on any issue, especially after the Galwan Valley clash, is an easy way to grab eyeballs. CAIT had called the investments “strategic move” of China to discreetly “command” Indian innovations and technology. Last week, it called for formation of a regulatory authority to monitor Bollywood, TV, and OTT content, believing them to spread negativity. Its worth asking: what does OTT regulation have to do with retail trade or e-commerce?

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