'Allow FDI in B2C E-commerce to Support Make in India Programme'

Retail has been undergoing a massive transformation in India in last two decades. The last decade saw mushrooming of shopping malls and modern trade. And in last few years e-commerce has seen a steep growth and acceptability across the consumers. As per various estimates, overall Indian retail market is expected to grow to $1 trillion by 2020 and e-commerce market is expected to grow to about $70 billion by that time. The growth of e-commerce has been primarily driven by factors like broader assortment, convenience and lower price, latter being the biggest driver so far.

As per the current FDI rules for online retailers, 100% FDI is allowed in B2B commerce and not in retail trading. As a result, most of the e-commerce players have pivoted to marketplace model in recent times. This allows these players to offer their platforms to other companies to sell their products.

In the offline retail, the government has allowed foreign investors to hold up to 51% share in multi-brand retail operations in India. This too has been subjected to certain criteria like clearances from individual state governments, mandatory minimum sourcing from local players and at least $100 million of investments. Hence this hasn’t taken off in a big way

The digital expansion of commerce has given consumers a wider variety of goods to choose from. This has also led to availability of goods in smaller towns that otherwise might not had access to them earlier. Moreover, the consumers can make this selection from the convenience of their homes or on the move on their mobiles now. This has clearly expanded the market and is challenging the monopolies of the incumbents.

The investments made in this sector have heralded growth of completely new ecosystem of businesses. There are better warehousing facilities and delivery mechanisms getting built. The democratization of commerce has happened with producers of goods getting a far bigger consumer market to tap as compared to the market they had access earlier offline. While 50% of consumers are still preferring to pay through cash, their proportion is expected to come down as better, friction-less and more trustworthy modes of digital payments like wallets start getting built and attracting consumer traction.

The experiences from other countries where e-commerce industry have matured show that these businesses need vast amounts of capital to bring in economies of scale and change consumer habits. These investments currently have been coming from foreign investors who have invested in similar businesses in other countries, have seen these businesses scale and have belief that a similar story would play out in Indian terrain as well. This kind and scale of risk capital hasn’t been available in traditional Indian economy earlier.

E-commerce as a commerce channel brings a certain set of advantages which have been missing from the earlier models. Even in mature markets like the US and Korea, the share of e-commerce as a proportion of total retail have been in lower double digit numbers. Hence it is important that FDI in B2C e-commerce should be allowed. A minimum domestic sourcing requirement can be added for such businesses which helps in supporting Make in India program of the government. It is also important to give a fair playing field to offline retailers who haven’t seen much FDI interest due to various reasons mentioned earlier. An open and competitive retail market with clear regulatory oversight to ensure fairness and transparency would be helpful to Indian businesses as well as consumers.