E-commerce players such as Amazon and Uber feel that dated laws and lack of clarity in regulations are the biggest risk for their India operations.
Industry observers say that the country’s laws need to keep pace with the rapid development of the e-commerce sector.
The world’s largest e-retailer Amazon.com Inc last week acknowledged the risks of operating in India. In its quarter results filing to the US Securities and Exchange Commission, Amazon said there are “substantial uncertainties” regarding the interpretation of Indian laws.
“If our international activities were found to be in violation of any existing or future Indian laws or regulations, or if interpretations of those laws and regulations were to change, our businesses in those countries could be subject to fines and other financial penalties, have licenses revoked, or be forced to shut down entirely,” Amazon said.
While the parent company announced a $2 billion investment in Amazon India, the operations in the country now face an uncertain future with Karnataka mulling changes in its Value Added Tax regime.
It isn’t just Amazon. San Francisco-based cab operator Uber has been asked to change its payment mechanism by the Reserve Bank of India. Uber allows users to download a mobile application after asking for credit card details. Unlike traditional payment gateways in India, which have a two step-verification, Uber’s international payment gateway directly charges the card after every trip.
Open to interpretation Domestic start-ups Flipkart and Snapdeal, which are now valued at $7 billion and $2 billion respectively after multiple rounds of investments from private equity funds, have also been in the eye of the storm. Brick-and-mortar retailers are crying foul and have asked the Commerce Ministry to step in.
“The rules that exist are dated and there is less clarity and lack of transparency. This leaves the rules open to interpretation and open to judgement on the investor’s best call,” Sanchit Vir Gogia, Chief Analyst and Chief Executive Officer, Greyhound Research told BusinessLine .
“There is definitely a need for specific rules and regulations for consumer protection,” he added.
But, lack of clarity in laws has not deterred investments. According to retail consultancy firm Technopak, e-commerce firms have raised more than $3 billion in over 150 deals between 2012 and October 2014.
Arvind Singhal Chairman Technopak said, “At about $32 billion (net revenues) by 2020 end, e-tail will account for 3 per cent of the total merchandise retail in India, even if e-tail grows faster than the current projections it is not likely to be more than 5 per cent of the total retail in 2020 and 10-12 per cent of the total retail by 2025.”
“The primary reason for increase investments is the large consumer base and the potential demand from India,” said Greyhound Research’s Gogia.
(Input from Meenakshi Verma Ambwani)