DIPP to Push for Higher FDI Cap in E-Commerce
DELHI – India’s Department of Industrial Policy and Promotion (DIPP) has announced it will soon push for a higher FDI cap in e-commerce as part of the department’s strategy to stimulate foreign investment.
At a stakeholders meeting last Thursday, the day before national election results were released, the DIPP announced its intention to push India’s new government to liberalize current FDI restrictions on investment in e-commerce.
Attended by representatives from 36 key stakeholder companies including Amazon.com, Walmart, Flipkart, eBay and Google, the meeting will be followed by a follow-up discussion early next week that will formalize the DIPP’s stance before the proposal is presented to the incoming BJP-led government.
While India permits 100 percent foreign direct investment (FDI) in business-to-business (B2B) e-commerce, FDI in business-to-consumer (B2C) e-commerce remains strictly prohibited and bound by FDI restrictions on the retail sector more generally. Because of this, many foreign e-retailers such as Amazon and eBay have established a “marketplace model,” whereby local independent merchants sell goods directly to consumers, and the platform earns commission from those merchants.
“We feel that FDI is needed in the e-commerce segment to boost manufacturing in the economy. FDI in e-commerce is required for the infusion of capital in SMEs,” a DIPP official said following the meeting.
While twelve Indian states currently permit investment in multi-brand retail by foreign companies, nation-wide FDI in multi-brand retail – and therefore e-retail – remains restricted to 51 percent.
Although the incoming BJP explicitly expressed opposition to liberalizing FDI caps in India’s retail sector, most analysts view retail FDI caps as more of a “wait-and-see” issue. Lobbying efforts in recent months by retail heavyweights Amazon.com and Walmart highlight the belief by many foreign companies that the BJP’s policy towards liberalizing FDI caps in e-retail will ultimately be flexible.
In January, the DIPP floated a discussion paper on FDI in e-commerce to solicit comments from policymakers and industry leaders on the various advantages and disadvantages of permitting 100 percent FDI in B2C e-commerce.
Key disadvantages noted by the discussion paper include global players having an “adverse impact” on India’s domestic e-commerce industry, the inability for ‘brick and mortar’ shopkeepers to compete with e-retail and the possibility that e-commerce would hinder the development of Indian-owned and led B2C e-retailers.
It also suggests, however, that permitting FDI in e-commerce could contribute as much as 4 percent GDP to India’s economy by 2020.
“We wanted to understand the challenges for e-commerce. Most stakeholders support FDI in e-commerce. The objective is to see how we push [the] manufacturing sector through e-commerce,” DIPP Secretary Amitabh Kant said.
As the BJP prepares to take the helm with a rare majority in the Lok Sabha (lower house of parliament), e-commerce stakeholders will be watching closely for signs that one of the most promising markets for e-commerce in Asia will soon be open for business to foreign investors.
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