The Commerce and Industry Ministry has asked the Reserve Bank of India and the Enforcement Directorate to look into the allegations of ‘FDI violation’ made by the Swadeshi Jagran Manch (SJM) in the $16-billion Walmart-Flipkart deal.

While maintaining that it is entrusted with the formulation of FDI policy across sectors including e-commerce, the Department of Industrial Policy and Promotion (DIPP) has in an office memorandum dated May 28 said that FDI policy as contained in ‘Consolidated FDI Policy Circular 2017’ is notified under FEMA law.

Any FDI violation is governed by penal provision in the Foreign Exchange Management Act (FEMA) 1999.While the RBI administers the FEMA, the Enforcement Directorate is responsible for enforcement of FEMA. So violation of FDI policy is therefore the subject matter of RBI/Enforcement Directorate, the DIPP said.

The DIPP has therefore “requested” the RBI/ED to examine the matter (SJM’s complaint) and advise on appropriate action to be taken.

SJM’s complaint

Political and cultural organisation Swadeshi Jagran Manch, which has been critical of the FDI, in a May 24 letter to the DIPP, Secretary requested the department to immediately “initiate an enquiry” into the “dubious deal” between Flipkart owners and Walmart — which has been written outside, but for all tangible and intangible assets placed in India.

Secondly, the DIPP should make “strong representation” before the Competition Commission of India so as not to approve the takeover deal before the results of enquiries being initiated by DIPP are available.

Also, DIPP should initiate enquiry into the nexus between Flipkart companies and the ‘so called’ independent B2C companies and how they were allowed to carry on activities without any objections from regulators, including the DIPP, in the past.

It may be recalled that Walmart recently acquired 77 per cent stake in the Singapore-based e-commerce company Flipkart. SJM has alleged that the deal violates the FDI norms as the acquisition is a means of backdoor entry for Walmart into the Indian multi-brand retail trade.

As per the current norms, FDI is not allowed in multi-brand retail to protect small traders and manufacturers and also consumers from predatory pricing.

SJM has alleged that the Flipkart Group, through a complex corporate structure, is presenting itself as an entity in the B2B segment whereas it is operating in both B2B and B2C segments. Also, the management of Flipkart is already illegally carrying on multi-brand retail trade through e-commerce by flouting RBI’s directions on FDI, said the SJM letter.

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