But in fact, Indian e-commerce companies, such as Flipkart, Jabong, Myntra and Snapdeal, have had a tenuous relationship with regulations, as detailed in this September 2012 story in Businessworld. YourStory.com has also outlined how Flipkart circumvented the law in these recent posts.
In 2006, the Indian government eased regulations on foreign direct investment in wholesale businesses (B2B) and single-brand retail, as part of a gradual opening up to FDI in the country. Though multi-brand retail was still closed to FDI, no specific policy had been laid down on online retail. Flipkart, which was incorporated in 2008, had a structure that made the best of this loophole—it was generally known as a retailer, but on paper it resembled a wholesaler, with another company, called WS Retail, functioning as its front-end, selling to customers. With this structure in place, Flipkart received foreign funds, which enabled to expand operations.
But when Businessworld went to visit WS Retail’s stated headquarters in Bangalore to find its supposed director Tapas Rudrapatna, they found a “small, sleepy house” and were then directed to a Flipkart office 5–7 kilometres away. There, an HR representative said that Rudrapatna worked for Flipkart. Further, WS Retail’s 50 percent shareholder was BK Bansal, Sachin Bansal’s paternal uncle, who told Businessworld that he knew very little about the business and that everything was handled by Sachin. This structure violated, if not the letter, the spirit of the law that was intended to restrict the influence of foreign funds over Indian retail ventures.
. They found loop holes. I am guessing every company does that.
