The decision of the Narendra Modi government to allow 100 percent foreign direct investment (FDI) in c-commerce platforms (market place format where the e-commerce companies are just a facilitator between the seller and the buyer but cannot sell its own inventory) is good news to India’s nascent e-commerce industry.
Given its capital intensive, low margin and high risk character, there aren’t many local investors who would put their money on the table into such companies. In this context, foreigners with deep pockets and high risk appetite can change the game for local e-tailing platforms since now there is clear policy structure.The other side of the story is that with the directive to e-commerce platforms not to “directly or indirectly influence the sale price of goods or services and maintain the level playing field” could mark the end of massive discount sales such as ‘One rupee flash sales’ announced by E-commerce platforms like Flipkart and Amazon.
The brick and mortar retailers have long been lobbying for level playing field when the onslaught of e-commerce platforms hit their businesses. But, more clarity on how the scenario will emerge only when the government spells out the granular details of the guidelines.
That is one part of the story.
But, what one must not miss here is the inimitable ‘timing’ of the FDI announcement. It comes just ahead of Modi’s three-nation tour to Belgium, the United States and Saudi Arabia. Modi boarded the plane on Tuesday night, a few hours after the FDI announcement came.
The visit has significance not just for diplomatic reasons but also for trade and business relations between India and those countries. The visit also includes Modi addressing Indian diaspora and taking part in the Indo-EU summit.
With the government just unveiling the new E-commerce FDI policy, Modi has something afresh to showcase to the NRIs and foreign investors and thus keep the promise of continuous reforms process on. The interesting part to note here is that even the last round of FDI liberalisation - when the government opened wider 15 sectors including defence, banking, construction, single brand retail, broadcasting and civil aviation on 10 November - came just a day before Modi’s visit to the UK.
By timing a big announcement on liberalising foreign investment rules on the heels of a foreign visit, Modi has already gained a point over those waiting for him with tough questions on the NDA government’s slow progress thus far on the big-ticket reforms. The government came to power in May 2014 with promises of rapid economic reforms in land, labor and tax areas.
With only two months left for this government to enter the third year of its rule, the report card shows that there has not been much progress on big-ticket reforms such as GST, land acquisition and radical reforms in the banking sector, where the government dominates as the owner and a major market-player.
GST, among all the items in agenda, carries more weight internationally, since it can unite a country of 1.25 billion Indians as a single market and broaden the tax base. But, the BJP’s weak position in the Rajya Sabha has given an edge to the Congress-led opposition to put up a stiff political hurdle to pass the Bill, in turn, leaving the Modi government in a difficult spot.
In a recent interview to Firstpost, former finance minister P Chidambaram had said the BJP is yet to respond to the three demands of his party on GST. But, there have been comments from senior BJP leaders that the party is unwilling to accept the demand of inclusion of GST rate in the Bill, weakening chances for any consensus.
Modi knows that the lack of progress on large-ticket reforms carries the potential to snatch away some shine from the good work his government has done in the areas of FDI liberalisaion, subsidy rationalisation and improving rural infrastructure in his foreign trips.
Here is where Modi’s clever political strategy comes to his help. By smartly timing FDI reforms announcements to his foreign visits, Modi has proved that he is the inimitable master of timing.
Tuesday’s FDI bonanza in E-commerce testifies that yet again.