Foreign companies with manufacturing units in India may be allowed to sell online directly to customers

Companies, domestic or foreign, with manufacturing facilities in India may get green signal to sell their products on online platforms without the requirement of any additional approval.

The Department of Industrial Policy and Promotion (DIPP) of Central Government has proposed in front of Union Cabinet to give permission to the companies having manufacturing units in India, irrespective of their origin, the approval to sell their products through retail including the booming e-commerce channel. They have also considered proper rectification of the “manufacturing” definition to allow their online sales in compliance with the Income Tax Act of India.

The Indian government’s stand on this

In line with the PM Narendra Modi’s “Make in India” campaign, the Finance Minister Arun Jaitley in his Budget speech earlier had expressed his motive to allow FDI as an automatic route in the manufacturing sector. The proposal by DIPP is largely looked upon as a step towards achieving the ministers’ vision. A government which has encouraged the foreign investors by already easing the country’s FDI policies in construction, transport, defence and medical devices, it only appears to be a matter of time before the proposal gets approval of decision making bodies of India.

Expected outcomes of the proposal

If the proposal gets approval of the Union Cabinet, the outcomes will be multi-dimensional.

For manufacturing companies

This autonomy to the manufacturing companies, especially the ones with large amount of FDI, was not provided earlier by the previous governments. They were also restricted to carry on their business only in Buisness-to-Business (B2B) model and were required to tie up with any domestic ecommerce portals to sell their products online. If this proposal gets the nod, companies with 100% FDI input and manufacturing units set up in India would be allowed to do business directly in Business-to-Consumer (B2C) model.

For Indian etailers

It is no doubt that the domestic etailers will take an initial hit as their market will then be shared with superior foreign brands. But this may also come as blessing in disguise as the Indian brands and etailers will push further to improve their products and service to global standards to thrive in the highly competitive market.

For consumers

Consumers will have more choices to select from when they sit down to shop online. They will have easy access to reputed global brands and will have the opportunity get the products delivered at their doorstep by just the click of a button.

Impact on ecommerce growth

Despite the ambiguity and delay in setting norms about foreign companies entering ecommerce in India, a lot of of foreign companies are clamouring to set up their manufacturing units in some part of India. Apart from the labour and real estate aspects, this could be due to the much-anticipated permission to sell online directly.

Apart from expanding their own product portfolio to cater to the potential Indian consumer base, these foreign companies would also push Indian companies to innovate their product offerings to match competition.