Govt to move Election Commission for permission to launch FDI in online retail

Written by fe Bureau | New Delhi | Updated: Mar 14 2014, 16:10pm hrs
EcommerceCurrently, global B2C e-commerce firms like Amazon and eBay operate in India as online marketplaces.
IN what would be a big boost for the retail e-commerce (business2consumer) space in India, the government has decided to allow foreign direct investment (FDI) in the sector. Although the foreign investment may need the approval of the government, the likes of an Amazon or an eBay can now do business here using the inventory-based model. It is likely foreign companies will be allowed to own 100% of the Indian entity.

Speaking at the Idea Exchange programme of the Express Group on Thursday, commerce and industry minister Anand Sharma confirmed the government would soon seek the nod of the Election Commission (EC). In Sharmas view, the government will not be violating the model code of conduct as the process had been initiated much before the election dates were announced.

The minister also confirmed that the government would be moving ahead on proposals relating to FDI in railways and construction since the relevant Cabinet notes had been floated before the code of conduct came into force and comments from related ministries had been obtained. Nevertheless, he said, the ECs nod would be sought.

I am personally in favour of allowing FDI in retail e-commerce, Sharma said, adding that following UK retailer Tesco, a couple of other global multi-brand retailers has expressed their interest in setting up shop in India.After Tesco, we expect a second proposal to go through, Sharma said. FE understands from industry sources that French firm Carrefour and Japanese retailer Aeon have submitted expressions of interest and are in talks with Indian firms which are likely to partner them.

The department of industrial policy and promotion (DIPP) had floated a discussion paper on January 7 detailing the pros and cons of allowing FDI in the sector where 100% FDI is already allowed in the business-to-business (B2B) e-commerce space. It had sought recommendations from various stakeholders by January 28.

Currently, global B2C e-commerce firms like Amazon and eBay operate in India as online marketplaces. In this model, these companies do not own any inventory and do not sell any of their own merchandise to Indian shoppers. They offer products from third-party sellers.

There are two models of e-commerce: marketplace and inventory-based. The marketplace model works like an exchange for buyers and sellers wherein the ownership of the inventory vests with the number of enterprises that advertise their products on the website and are ultimate sellers of goods or services. On the other hand, in the inventory based model, the ownership of goods and services and marketplace vests with the same entity.

There's been a buzz in the market that Carrefour, which entered India in 2010 and now has five cash and carry stores in the country, is in talks with some Indian retailers for a tie-up. Japanese retailer Aeon has also said that it is keen on entering the Indian market. "Aeon is interested to enter India. It is a big chain. They are studying the market and are yet to apply to Foreign Investment Promotion Board, Mikio Aoki, director for the southwest Asia office, trade policy bureau at Japan's ministry of economy, trade and industry, had told FE in November 2013.