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Govt should open up e-commerce: Why FDI is a good for Indian etailers

New Delhi: The Modi government held its first round of consultations on the issue of allowing Foreign Direct Investment (FDI) in e-commerce with stakeholders today. Participants included representatives from e-tail majors like Flipkart and Snapdeal, smaller etailers and industry associations.

Sources told Firstpost one of the biggest Indian etailers was clearly opposed to opening up the B2C e-commerce sector for FDI as were some associations representing small retailers. But a large number of the participants in today's meeting were in favour of opening up the sector.

The consultations by the commerce ministry come just after it released a consolidated FDI policy on Tuesday where it surprisingly stuck to the UPA government's decision of letting foreign retailers own 51 percent stake in multi-brand retail in the country. Is the Modi government softening its stand on allowing foreign retailers into India, whichever route they might want to take?

Two factors may be pushing the government towards FDI. Sources told Firstpost the Make-in-India push of PM Modi could be a consideration in any government decision on allowing FDI in B2C e-commerce. These sources said commerce minister Nirmala Sitharaman told those present that apart from the Make-in-India considerations, the government also wants to prevent Indian markets from being "flooded with imported goods".

The sources said majority of those present in today's meeting were in favour of allowing FDI in B2C e-commerce retail trade. They questioned the rationale of barring any FDI in this burgeoning sector when the government has seen logic in continuing with 51% FDI in multi-brand retail.
After the meeting was over, Sitharaman said “We are not taking a position this way or that. We have heard everybody… on whether they need FDI or do not need FDI and whether it will affect the level playing field. We need many more meetings.” Another stakeholder meeting is likely in about two months, by when industry chamber Ficci is also expected to come out with a report on FDI in B2C e-commerce.

At present, India allows 100 percent FDI in business-to-business or B2B e-commerce, but not in B2C companies that sell directly to consumers.
Representatives from industry body CII, FICCI, Nasscom and companies such as eBay, Snapdeal, Flipkart and Ikea attended the meeting.

 Govt should open up e-commerce: Why FDI is a good for Indian etailers

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CII said after the meeting that it is "favourably inclined" towards 100% FDI in B2C e-commerce but the"sector should be given some time to come to a level where it can compete globally." The chamber has recommended establishment of a level playing field for all stakeholders and safeguards for Indian players such as mandatory local sourcing, privacy, safety against tax evasion, checking e-wastage etc.

Ficci also said FDI should be allowed in B2C e-commerce but with a focus on sourcing from Indian manufacturers and in a phased manner. The chamber said opening up the sector would create new global markets for small businesses/entrepreneurs, help them scale up at almost no cost and provide them access to a wider and more diverse base of consumers and retailers. Ficci advocated a prescribed percentage of sourcing from domestic enterprises for allowing FDI, saying the limit could be based depending on the level of FDI.

The Flipkart spokespersons remained unavailable. And a statement from Snapdeal did not clarify if the company favours FDI in the sector. It merely said "We are committed to enabling MSMEs across the country to grow, by providing them nationwide reach for their products and services, through our marketplace platform. Snapdeal will continue to connect the dots between demand and supply as an intermediary between buyers and sellers across the country. The government must tread this issue with caution to ensure that there is no adverse impact on the growth of MSMEs in the country as a result of any policy change in the long term."

The debate over whether India will open up B2C e-commerce to FDI has been long and often bitter. Just as the debate over whether to allow any FDI at all in the brick-and-mortar retail segment saw ridiculous objections being raised by small traders as well as big Indian retail, the B2C e-commerce FDI issue too has seen myriad objections from stakeholders. Clearly, the guys who have expanded e-commerce B2C into billion dollar businesses are happy with funds coming in from Venture Capitalists and Private Equity investors but feel threatened if global biggies like Amazon or eBay were to bring their successful e-commerce models and global best practices to India.

Amazon and eBay operate in India as online marketplaces. These companies do not own any inventory, do not sell any of their own merchandise but offer products from third parties to Indian consumers. The Commerce Ministry's discussion paper last year listed objections it received from a national body of traders to open up B2C e-commerce to FDI:

1) Small time trading of opening corner stores still remains a large source of employment. FDI will have disastrous impact on this sector leading to monopolies in logistics, manufacturing and e-commerce. It will cause large scale unemployment

2) Because of scale of operations, e-commerce players will have more bargaining power than standalone traders

3) Allowing FDI in ecommerce will provide such players enormous geographical reach and this will be against the spirit of FDI in multi-brand retail which is restricted to cities with more than a million people

Of all the objections, only the one which points out violation of condition for FDI in multi brand retail makes sense. The Government should lift the restriction on brick and mortar retail too - that is the only way Indian manufacturing can grow. Restricting foreign investment in retail trade - online or offline - has lost its appeal now.

The view of a domestic e-commerce company, as set out in the discussion paper, needs to be heard too. It says that India's e-commerce industry has been developed by first-time entrepreneurs with active PE/VC participation and the latter have invested approx $2 billion in the last two years."So the outlying need for capital in the industry can be met by these VC/PE investors. And foreign capital should be allowed in financial form, not in strategic form. 100% strategic investment over 3-4 years in a phased manner can be considered."

Obviously, shopping on the net is set to grow exponentially, if only policy was framed to assist this burgeoning business model.

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Updated Date: May 14, 2015 16:24:08 IST