In context of the current national policy discussions on the economic situation in the country, Internet and Mobile Association of India (IAMAI) has suggested opening up consumer e-tailing in India to Foreign Direct Investment (FDI).
FDI in retail in India is currently set at 51 per cent for multi-brand stores and 100 per cent in single brand retail stores as well as in online B2B structures.
“Consumer business historically has inherently been difficult to conduct. E-commerce in addition has an online infrastructure which, as mentioned, is capital intensive and requires periodic upgradation as well. At the scale e-commerce is growing, it will require investments to sustain its growth and large businesses to build the complete value chain, in the absence of which this sector might slow down and could see flight of capital from the country,” said Dr Subho Ray, President, IAMAI.
Lack of FDI arrangements has been one of the major reasons for e-tailing websites adapting the market place model to gain funds from foreign investors. According to estimates, e-commerce portals have attracted more than $800 million of foreign investment in various formats.
“We were surprised when the Government excluded e-commerce while setting FDI limits for the retail sector. Foreign investors are not looking at the sector, which only dampens the situation,” said Manmohan Agarwal, CEO, Yebhi.
Currently, the B2B e-commerce segment is allowed 100 per cent FDI, while 49 per cent FDI for the B2C e-commerce segment has been suggested, but has not been in action so far. A number of leading Indian e-commerce websites currently have two business models – B2B and B2C – so as to get investments through FDI.
“E-tailing, which includes purchases of various consumer products/ services such as electronics, apparels, footwear, jewellery, home & kitchen appliances, consumer durables, and furnishings, constitutes 16 per cent of the total digital advertising in India,” added Ray, while highlighting the potential of the segment.
While IAMAI has proposed FDI, vendors can do nothing but wait anxiously. The Indian e-tailing space has not witnessed any spectacular growth in the last few months and FDI in the sector is expected to open a lot of closed doors for vendors. Agarwal expressed that permission of even 51 per cent FDI in e-tailing is good to start with.