Early this week, the Department of Industrial Policy and Promotion (DIPP) granted permission for conditional foreign equity in the retail e-commerce segment when the products sold are also manufactured in the country, as also for single-brand foreign entities with physical retail chains that want to go for online merchandise.
In an official statement DIPP mentioned that the guidelines for FDI on e-commerce sector have been formulated in order to provide clarity to the extant policy. The guidelines, issued under Press Note 3 of the Department of Industrial Policy and Promotion (DIPP), came after numerous submissions from stakeholders that the current policy had no clarity on the issue of foreign equity in e-commerce where the sales were made directly to customers.
Sharing his thoughts about the policy, Manu Agarwal, CEO & Founder, Naaptol said, “The announcement is a welcome move and brings about clarity in operational guidelines that enables the marketplace operator to provide value-added services that can exponentially improve warehousing capability, logistic efficiency and market outreach. Naaptol strongly adheres to the rules and regulations laid out for e-commerce industry and this move will certainly pave way for a scalable ecommerce ecosystem.”
While it has come out with the definition of categories such as e-commerce, inventory-based model and marketplace model, the current FDI policy, foreign capital of up to even 100 percent is allowed under the automatic route involving business-to-business e-commerce transactions. No such foreign equity was permitted in business-to-consumer e-commerce.
According to Dinesh Agarwal, Founder and CEO, Indiamart,the ruling from the government is welcomed and removes the prevailing confusion. While B2B always had 100 per cent FDI, there were many enterprises which had a mix of B2C and B2B.
“Now there is clarity in the overall business processes. It will be in good interest to the customers and competition in retail but the move may not be in the best interest of Indian economy. The nascent SME sector may fall prey to the predatory pricing. Also, the 25 per cent limit for a single player is too high and may not be in the best interest of the sector,” expressed Dinesh Agarwal.
On the other side, a manufacturer is permitted to retail products made in the country through foreign-owned entities, even as single brand foreign retail chains that currently have brick and mortar stores can undertake direct sale to consumers through e-commerce.
As regards the Indian manufacturer, 70 percent of the value of products has to be made in-house, sourcing no more than 30 percent from other Indian manufacturers. But no inventory-based sale is allowed — that is, such foreign retailers cannot stock products.
Aditya Kandoi, Co-Founder, CareOnGo believes that foreign investment is a key component driving the Make in India Campaign.
“By allowing the 100 per cent FDI in e-commerce marketplace the government has helped lift the long perceived bureaucratic mind block around the business and will give the necessary push to the spirit of start-up culture in general. Furthermore the 25 percent cap on total sales and well formulated policies will help pave a level playing field and curb predatory pricing,” added Kandoi.
Apart from this, the e-commerce model will include all digital and electronic platforms such as networked computers, television channels, mobile phones and extranets. The payment for such a sale will be in conformity with the guidelines of the Reserve Bank of India.
Domestic e-tailers have alleged that foreign e-commerce companies are acting like a marketplace by storing goods in their warehouses.Prior to this development, Nirmala Sitharaman, Commerce Minister, has met industry representatives from both e-commerce and retail companies as well as other stakeholders to discuss opening up the e-commerce sector to FDI.
Expressing his thoughts, Ujjwal Trikha, Fouder& CEO, FurnitureDekho said, “The move will help companies in multiple ways as opening doors for foreign investments will enable them to focus on core business proposition and further access to funds. The clear definition by DIPP for market place and inventory based models of e-commerce will help in structuring the industry.”
Meanwhile, on Wednesday, the CPI-M dubbed the government move to allow 100 per cent FDI in e-commerce retail an outright surrender to the big foreign e-commerce retail firms and demanded its scrapping.
“This is clearly announced to appease foreign capital on the eve of (Prime Minister Narendra) Modi’s US visit,” the Communist Party of India-Marxist said in a statement.
According to CPI-M allowing of FDI in e-commerce will facilitate the backdoor entry of FDI in retail. This will affect the livelihood of lakhs of small retailers in the country. Thus, he CPI-M demanded that this harmful policy be immediately rescinded.
