Demarcating policy space PDF Print E-mail
Thursday, 07 January 2016 00:50
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Sovereign right, not fairness, to guide e-tail debate


Though leading e-commerce players like Amazon and Flipkart appear to be violating the spirit of the e-commerce law which prevents FDI in firms which serve retail customers, the government has just invoked a new line of defence, of the sovereign’s right to make policy with the courts’ role restricted to only ensuring the policy does not violate the Constitution. Since FDI is not allowed in multi-brand retail but is coming into B2C (business-to-consumer) e-commerce through what is called the ‘market place’ model, traditional brick-and-mortar companies went to court alleging bias. Normally, this should have worked well since, if FDI is not allowed in multi-brand retail, it cannot be allowed in through the back door in e-commerce either. More important, it creates an unlevel playing field since, an Amazon or a Flipkart, is able to use foreign funds to offer very large discounts to attract customers away from traditional retailers—witness the huge discounts available across most e-commerce firms—who do not have access to the same cheap/free money.

The level-playing-field argument, however, has been made irrelevant with the department of industrial promotion and policy’s (DIPP) new stance before theDelhi High Court. In the fight between the Ambani brothers on allocation of gas from the KG Basin, the DIPP has cited the Supreme Court judgment as saying “it cannot, and shall not, be the endeavour of this Court to evaluate the efficacy of auction vis-à-vis other methods …. it cannot and will not compare which policy is fairer than the other”. In Maiyain versus Union of India, the SC said “unless the decision is shown to be contrary to any statutory provision or the Constitution, the Court would not interfere with an economic decision taken by the State … Nor are the courts inclined to strike down a policy … because … a different policy would have been fairer or more scientific or more logical … wisdom and advisability of economic policy are ordinarily not amenable to judicial review”. All this, ironically, when the same DIPP affidavit says “it is submitted that the term ‘market place’ is not recognized in the FDI policy”—amazingly, the next sentence of the affidavit says “However, it is yet again stated that FDI Policy unambiguously does not permit FDI in B2C e-commerce”!

If the DIPP has to put out such an affidavit, it is because the government wants to run with the hare and hunt with the hounds. Since its core constituency of small retailers opposes FDI in multi-brand retail, the government has opposed it—amazingly, though, it remains on the statute as removing a law passed by the UPA would make the NDA government look anti-reform. The small retailer, however, has realised that while a Walmart may not pose too much of a threat since most cities don’t have the kind of large retail spaces a Walmart needs, deep-pocketed e-tailers can, and are, making life difficult for them. But the government also knows that if it bans ‘market places’, very large FDI flows will simply dry up, and it will be branded anti-reform; if, on the other hand, it allows B2B e-commerce to include ‘market places’, it will have to allow FDI in multi-brand retail. The only way to reconcile this non-reconcilable position is to simply put the policy outside the purview of the courts. It would be so much straight forward if the government was to simply allow FDI in multi-brand retail since, in any case, this is not going to hit small kirana stores. Perhaps the government will have to do this if brick-and-mortar retailers approach the Competition Commission with their level-playing-field argument.



Indu's story

Striking a rare aggressive tone, the Department of Industrial Policy and Promotion (DIPP) has sought to shore up the defence of the country’s foreign direct investment (FDI) policy in the Delhi High Court, citing a clutch of Supreme Court rulings over the last few decades that cemented the executive’s policymaking domain.

Urging the court to dismiss a petition by traditional retailers seeking action against alleged violation of the e-commerce FDI policy by large online retailers, the DIPP, the author and sentinel of FDI policy, quoted from apex court rulings ranging from the historic 1970 Bank Nationalisation case to the one in May 2010 that settled the high-profile row between the Ambani brothers over allocation of gas fields.

All these Supreme Court judgments had unequivocally said the judiciary would do well to refrain from pronouncing whether a particular policy embraced by the government of the day was fairer compared with a presumed alternative so long as the former did not fall foul of the fairness requirement of Article 14 of the Constitution. For instance, in the Ambanis’ case, the SC said: “Unless the decision is shown to be contrary to any statutory provision or the Constitution, the Court would not interfere with the economic decision taken by the State.”

Telling the high court that the “marketplace” model allegedly used by e-tailers like Amazon India, Flipkart and Snapdeal is “not recognised” in its FDI policy, the DIPP said any violations of the policy would be dealt with by the competent agency — the Enforcement Directorate — under the Foreign Exchange Management Act, 1999.

Urging the HC to dismiss the All India Footwear Manufactures and Retailers’ Association’s (AIFWMRA) petition which “failed” to show that the FDI policy is “arbitrary, mala fide or ultra vires of the Constitution”, the DIPP said that the policy, which was arrived at after detailed consultation with all the stakeholders, is sound, transparent and predictable with an effective regulatory mechanism. The DIPP also highlighted that “the review of FDI policy is an ongoing process and significant changes are made in the FDI policy regime from time to time to ensure that India remains an attractive investment destination”.

In July 2000, the government first allowed FDI in e-commerce for business to business (B2B), with certain conditions, but not in retail trading. Subsequently, when the retail sector was opened up, curbs were still on FDI in B2C e-commerce. However, in November 2015, the government opened it up further and said any foreign entity that has been granted permission to undertake single-brand retailing will be permitted to undertake e-commerce activities. For instance, Swedish company IKEA, which is setting up shop in Hyderabad, will be eligible to sell furniture to Indians through its e-commerce platform. An Indian manufacturer is allowed to sell its own single-brand products through e-commerce as well.

The manufacturer would have to be the investee company and make in India at least 70% of products in-house and source at most 30% from Indian manufacturers. The question raised by the petitioners AIFWMRA’s is that the marketplace model employed by the big e-tailers amounted to violating the ban on multi-brand B2C e-commerce.

The following are some excerpts from the DIPP’s affidavit where it quoted SC rulings outlining the limits of the judiciary in interfering with government’s policymaking. “The function of the Court is to see that lawful authority is not abused but not to appropriate to itself the task entrusted to that authority.” “Courts are not to interfere with economic policy, which is a function of experts” who themselves can “seriously and doubtlessly differ” in such matters. “It is not the domain of the court to embark on uncharted ocean of public policy in an exercise to to consider as to whether a particular policy is wise or a better public policy can be evolved.”

In defence of policy:

DIPP quoted apex court’s rulings from bank nationalisation in 1970 to Ambanis’ case in May 2010

SC said judiciary to refrain from ruling on policy’s fairness if it met requirement of Article 14

DIPP also highlighted that “the review of FDI policy is ongoing process”


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