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Making an Effective FDI Policy for B2C E-commerce

There is, interestingly, a group of ecommerce companies and investors (Indian and MNCs) in b2b ecommerce who are opposed to FDI in b2c inventory based ecommerce. An equally strong group of Indian e-commerce companies and MNCs would like to see 100% FDI in this segment.

Shubho Ray        Last Updated: February 26, 2014  | 08:47 IST
Making an Effective FDI Policy for B2C E-commerce

Just about a week before the Arvind Kejriwal-led Delhi government took Delhi off the map of FDI based multi-brand retail business (without asking the citizens this time), the Department of Industrial Policy and Promotion (DIPP) came out with a much awaited Discussion Paper on FDI in Ecommerce. The Paper, short and precise, starts with the current status of ecommerce in India, goes on to the challenges faced by ecommerce companies in raising funds and collates views of different stakeholders on the merits and demerits of allowing FDI in inventory based ecommerce or what the government terms, business to consumer ecommerce. In the end, the paper asks stakeholders to answer eight key questions. My inbox has letters from three large industry associations seeking answers to these questions.  
 
One would have thought that after receiving detailed feedback from numerous stakeholders such as traders' bodies, industry associations, multi-national corporations and Indian companies, the DIPP would have been able to come up with a policy formulation rather than recycle a set of questions most of which have already been answered in the paper itself.  
 
The debate, as reflected in the paper, follows the now well-known line: the pro-FDI arguments cite creation of infrastructure, more jobs and better consumer service, while the anti-FDI front argues there will be loss of jobs, a monopoly by multinational companies and predatory pricing with producers.
 
There is, interestingly, a group of ecommerce companies and investors (Indian and MNCs) in b2b ecommerce who are opposed to FDI in b2c inventory based ecommerce. An equally strong group of Indian e-commerce companies and MNCs would like to see 100% FDI in this segment.
 
At this point what is crucial in the debate is whether or not the government wants to open up this sector to FDI? Given a couple of recent big-ticket decisions, I am inclined to believe that the intention is positive, but the apprehension is about effectiveness. Will there be substantial impact on investments, creation of new jobs, back-end infrastructure etc. if the sector is opened up to FDI? Will that be sufficient to offset the perceived "losses" indicated by those opposed to it?
 
Much will then depend on how the policy is designed and framed. It has to be sufficiently open and stable to allow interested parties to come in, and sufficiently closed to prevent a free run. Here is what would work effectively: starting with allowing 50 per cent FDI investment (as the government has indicated) in the first year; not differentiating between strategic and financial investments; removing geographical limitations as carrots, and mandating 40% per cent minimum sourcing from India as the stick.  
 
Two tricky questions connected with the larger consensus on the issue still need to be answered. First: what happens to the states that currently oppose FDI based multi-brand retail? I would submit that (a) most states understand that online consumer commerce is different from shop front retailing - the primary investment here is not in expensive real estate, but in supply chain and human resources and (b) most states would not want their residents to be deprived of the efficiencies and cost benefits of ecommerce even if they do not allow e-commerce companies to set up "shops".
 
The second question is: Should agricultural produce be permitted to be sold in this format of retailing? Personally, I would answer that in the negative. But this is the biggest opportunity to bring in supply chain efficiencies and cut down on numerous intermediaries that plague the primary producers. Perhaps, it may also free us from the seasonal onion crisis!  
 
The author is President, Internet and Mobile Association of India. The views expressed here are personal.

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