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October 19, 2012

The Letter and Spirit of FDI in E-Commerce

Businessworld has an investigative report on how Indian e-commerce firms are "working around" the restrictive laws on FDI in retail. 
The B2C company acts as a ‘front’ for the B2B firm and in most cases is publicly portrayed as a packaging and logistics entity. As soon as a customer orders a product on Jabong, Jade eServices conducts what the industry commonly calls a “flash sale” with Xerion, which then bills, packs and ships the product under its name, technically keeping the foreign-funded firm at an ‘arm’s length’ from selling directly to the consumer. But does it? “We are fully compliant with laws in India,” says an e-mailed response from Jabong, though many legal experts beg to differ.

...The money is raised by Jasper Infotech, a marketing firm, while B2C entity Spinel Tradecom bills the consumer (only when products are warehoused within). Neither finds a mention in the release. Snapdeal CEO Kunal Bahl did not respond to queries.

As for flipkart.com, it has created a complex structure above its backend firm Flipkart Online Services (FOS), which held the Flipkart brand till it was transferred to Flipkart India, another B2B entity, in late 2011. Both entities licenced the brand to B2C firm WS Retail. The August round of funding of nearly $30 million in Flipkart India has come from Flipkart Singapore — one of the four new firms created by Flipkart in Singapore a couple of months ago. Myntra.com, yebhi.com and Gurgaon-based Smile Group entities dealsandyou.com, fashionandyou.com and freecultr.com have all got foreign funds through similar structures.

Viewpoint: While businesses obviously need to adhere to the letter of the law, the slant and tone of this article - in a publication that slams the government vehemently for being too slow on the reforms front in its editorials and columns - seemed jarringly out of sync.

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