[Editorial Analysis] The foreign hand business again: foreign investment in the internet

Mains Paper 3: Economy
Prelims level: Foreign Direct Investment
Mains level: Investment models and associated issues in Indian Economy

CONTEXT:

• In the past few months, JioMart had expanded to fashion and electronics sales for existing large e-commerce marketplaces. Reliance’s intention to push these segments first for the bigger e-commerce play ahead is obvious. Now there is a dispute among Amazon, Future Retail Ltd and Reliance company.

AMAZON- RELIANCE- FUTURE BATTLE:

• Last year, Amazon had bought 49% in one of Future’s unlisted firms, with the right to buy into the listed flagship Future Retail Ltd.

• During the lockdown, the retailers ran into a severe cash crunch.

• In May, Amazon was considering increasing its stake in Future Retail. But no such transaction materialized quickly.

• Future makes a deal with Reliance, infuriating Amazon.

• In early October, amazon accused its partner Future Group of breaching terms of a mutual agreement by announcing an asset sale deal with Reliance.

WHAT IS THE REAL DISPUTE?

• The fight is essentially for the dominance of India’s estimated $1 trillion consumer retail market.

• Future Group is caught in the middle of this tussle between these companies.

• Reliance is already the country’s biggest retailer.

• With Acquiring Future’s retail, wholesale, logistics and warehousing units would almost double Reliance’s footprint and give it an unparalleled edge over rivals.

ISSUES ARISING FROM THIS DISPUTE:

• Legal issues are arising from the dispute such as the validity of emergency arbitral awards, rights of minority shareholders and debt structuring.

• As well as some issues such as FDI in multi-brand retail will turn on the country of incorporation of a party.

• In this current case, there seems to be a risk that the foreign identity of the company might overshadow all relevant legal assessment.

ISSUE OF WHATSAPP PAY:

• WhatsApp Pay is still stuck before the Supreme Court even though it claims to have obtained all requisite approvals.

• Multiple petitions have been filed against WhatsApp Pay claiming that permitting foreign entities to launch payment apps would endanger the country’s financial data.

• While National Payments Corporation of India approved the WhatsApp’s data localisation.

RECENT SITUATION:

• The last few months have also seen a problem by several Indian apps regarding the “gatekeeper” status of foreign app-stores and their ability to arbitrarily remove apps.

• In India, app developers have complained not merely about a competition violation but also a systemic affront to the financial ecosystem of the country.

• The app developers have criticised app-store policies for being “over and above the laws of our country.”

• As well as the founder of Paytm has called Google a “money collecting and money siphoning” machinery.

• There are frequent references to Google as the East India Company, also attempt to monetise the country’s past.

• Sentiments of corporate nationalism become even more noticeable when it comes to Chinese companies.

• Restrictions made by the Indian government is mandating prior approval for Chinese FDI, banning several Chinese apps and restricting Chinese bidders from participating in public procurement contracts.

• Sovereign is well within its rights to increase economic self-reliance.

• To promote domestic businesses, Atmanirbhar Bharat and Make in India campaigns being prime examples of such an exercise of sovereign power.

• The rise in corporate nationalism in India, steeped in ideals of domestic self-reliance.

• As against corporate nationalism foreign investors hold majority stakes in most of these “Indian” startups.

• While painting Amazon as a foreign oppressive ruler, Reliance, also receiving investments from google.

OTHER ISSUES:

• With this dispute, domestic companies characterise the regulatory landscape in a way which reduces enforcement risk for them. So, foreign companies’ risk being caught in the crossfire due to their “foreign-ness”.

• As well as Indian entities violate laws escape enforcement because of their status as “domestic champions”.

• Such an approach alters legal jurisprudence.

• This approach of altering legal jurisprudence placing the foreign identity of a party at the centre of regulatory
assessments, ultimately subverting the objective of commercial laws.

• These practices also paint a very poor picture for foreign investors and cause uncertainty in an already chaotic legal environment.

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Prelims Questions:

Q.1) With respect to “International Day of People with Disabilities (IDPWD)”, consider the following statements:

1. It was proclaimed in 1992 by United Nations General Assembly resolution 47/3.

2. Its objective is to promote the rights and well-being of persons with disabilities in all spheres of society and development and to increase awareness.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Answer: C

Mains Questions:

Q.1) What do you mean by the FDI? Highlights the instances where the sentiments of corporate nationalism has been raised against foreign corporates? Comment.

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