DIPP unveils discussion paper on FDI in e-commerce

Friday, 10 January 2014
After allowing 100 percent FDI in single brand and up to 51 percent in multi-brand retail, the government released a discussion paper on FDI in e-commerce. It hints at the liberalization of FDI norms in online retail sector. The paper analyses the impact of the 12.6 billion dollars (About Rs 78,625 crores) e-commerce industry on other forms of retail.

In the paper circulated among government departments and retailers, the Department of Industrial Policy and Promotion (DIPP) has put forth case of both proponents and opponents of easier norms governing FDI in online retail. As per the current FDI policy governing online retailers, companies with foreign investments are only allowed to engage in business-to-business, or wholesale, e-commerce and not in retail trading. In wholesale e-commerce, the government allows 100 percent FDI.

Foreign investment in the e-commece sector could boost the capital-intensive industry, which has been struggling to attract funds to facilitate expansion. E-commerce accounts for a fraction of India’s retail industry, estimated at an annual 490 billion dollars (Rs 30,47,800 crores).

According to a 2013 report by consulting firm KPMG and the Internet and Mobile Association of India, restrictions on FDI in inventory-based consumer e-commerce have led to capital constraints that have put a question mark on the survival of many online retailers. The report said 70-80 percent of e-commerce companies were in dire need of funds.

E-commerce is a capital-intensive business and with problems abounding in technology infrastructure, profit margins low and physical infrastructure (logistics and distribution) poor, the industry needs regulations that are supportive and provide for an environment conducive to growth, the report added.

Views opposed to the easing of FDI norms in online retail have also been considered in the discussion paper, in which a national body of traders has stated that the Indian market is “not yet ready” for opening up the e-commerce space to foreign investors.