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FDI in B2C E-COMMERCE

The Modi government held its first round of consultations on the issue of allowing Foreign Direct Investment (FDI) in e-commerce with stakeholders today. Participants included representatives from e-tail majors like Flipkart and Snapdeal, smaller etailers and industry associations.
At a recent meeting with e-commerce company heads (both domestic and foreign players) Commerce Minister Nirmala Sitharaman discussed the degree and the kind of FDI that can be opened up in the B2C retail space. Currently, 100 percent FDI is allowed only in the business to business (B2B) space. 
Two factors may be pushing the government towards FDI. 
  • The Make-in-India push of PM Modi could be a consideration in any government decision on allowing FDI in B2C e-commerce & 
  • Also the government also wants to prevent Indian markets from being "flooded with imported goods". 
At present, India allows 100 percent FDI in business-to-business or B2B e-commerce, but not in B2C companies that sell directly to consumers. At present, India allows 100 percent FDI in business-to-business or B2B e-commerce, but not in B2C companies that sell directly to consumers.

Positives

  • CII said after the meeting that it is "favourably inclined" towards 100% FDI in B2C e-commerce but the"sector should be given some time to come to a level where it can compete globally." The chamber has recommended establishment of a level playing field for all stakeholders and safeguards for Indian players such as mandatory local sourcing, privacy, safety against tax evasion, checking e-wastage etc. Ficci also said FDI should be allowed in B2C e-commerce but with a focus on sourcing from Indian manufacturers and in a phased manner.
  • Those in the favour of FDI maintain that allowing FDI in retail could be one of the first tangible signs of economic revival and will pave the way for global retailers to bring their formidable supply chain, and cheaper goods, into India. They believe, this will spur manufacturing, thereby supporting the Make in India vision.
  • Opening up the sector would create new global markets for small businesses/entrepreneurs, help them scale up at almost no cost and provide them access to a wider and more diverse base of consumers and retailers. 
  • Some believe that FDI in online commerce is also expected to eliminate middlemen, leading to lower transaction, overhead, inventory and labour costs.
  • The sector has been witnessing a growth of almost 100 percent year-on-year. To enable the sector to spur manufacturing for Make in India, create seven lakh jobs and also attract investment of $25 billion, opening inventory-led B2C e-commerce to FDI is critical
Negatives

The Commerce Ministry's discussion paper last year listed objections it received from a national body of traders to open up B2C e-commerce to FDI:
  • Small time trading of opening corner stores still remains a large source of employment. FDI will have disastrous impact on this sector leading to monopolies in logistics, manufacturing and e-commerce. It will cause large scale unemployment
  • Because of scale of operations, e-commerce players will have more bargaining power than standalone traders
  • Allowing FDI in ecommerce will provide such players enormous geographical reach and this will be against the spirit of FDI in multi-brand retail which is restricted to cities with more than a million people
Of all the objections, only the one which points out violation of condition for FDI in multi brand retail makes sense. The Government should lift the restriction on brick and mortar retail too - that is the only way Indian manufacturing can grow. Restricting foreign investment in retail trade - online or offline - has lost its appeal now.

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