Tuesday 16 June 2015

Govt turns down FDI in retail e-commerce

Centre wants 'Make in India' to succeed before opening B2C segment

The Union government will not ease foreign direct investment (FDI) rules for electronic commerce.

Minister of State for Commerce and Industry Nirmala Sitharaman last month met executives of Flipkart and Snapdeal and representatives from the Confederation of Indian Industry (CII) and the Federation of Indian Chambers of Commerce and Industry (Ficci) to assess the impact of FDI on Indian e-commerce companies.

The meeting spawned speculation that the National Democratic Alliance (NDA) government might allow foreign e-commerce companies to operate in India. New Delhi is also under pressure from Washington and Tokyo to relax its FDI policy for e-commerce.

  • Nirmala Sitharaman, minister of state for commerce and industry, held a meeting with key players and industry associations. More such meetings on the issues have been planned
  • Centre is keen on promoting Indian manufacturing under the ‘Make In India’ programme
  • Foreign direct investment (FDI) in e-commerce is against consumers’ interest, says Department of Industrial Policy and Promotion
  • 100 % FDI is allowed in business-to-business e-commerce but prohibited in business-to-consumer segment
  • Increasingly, foreign retailers operating in India are shifting to the marketplace model

"B2B (business-to-business) is the best policy. We will just not allow B2C (business-to-consumer). India strongly believes that B2C is against the consumer's interest. If China and Japan have not opened up, why should we?" a top official with the department of industrial policy and promotion (DIPP) told Business Standard.

More meetings on cards
During Sitharaman's meeting some of the points that emerged were allowing FDI in e-commerce would face attack from small retailers and the market would be flooded with imported goods. Sitharaman planned to hold more meetings on this issue, the official said.

The NDA government wants the 'Make in India' campaign to be successful before opening up B2C e-commerce to foreign retailers. Besides, Indian industry is not enthusiastic about the move.

In a representation to the DIPP, the CII stated foreign companies should be allowed after Indian e-commerce players had acquired the strength to take on the competition. The chamber sought safeguards for Indian companies like local sourcing, privacy, safety against tax evasion and checking e-wastage.

At present, 100 per cent FDI is allowed in business-to-business (B2B) e-commerce, while it is banned in the business-to-consumer (B2C) segment. Besides, there is a 30 per cent local sourcing rule for foreign players.

Marketplace trigger
Large Indian e-commerce companies like Flipkart and Snapdeal have grown significantly since their inception in 2007 and 2010, respectively. Global e-commerce giants like Amazon can operate in India under the marketplace model. In some cases, foreign players have tied up with local companies to enter the Indian market.

According to a report by Technopak, the adoption of marketplace models by e-tailers is fuelled principally by business scalability and FDI policy compliance.

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