Fearing backlash, govt puts e-commerce FDI on hold

Written by Kirtika Suneja | New Delhi | Updated: Dec 13 2013, 07:48am hrs
aced with opposition from domestic players and retailers on allowing foreign direct investment (FDI) in the e-commerce space, the government has put the issue on the back burner. Though the department of industrial policy and promotion (DIPP) is mulling entry barriers and sourcing requirements on such FDI, it fears the political ramifications of foreign companies wiping out local retailers.

At present, retail trading in any form by means of e-commerce is not permissible though 100% FDI is allowed in business-to-business through the automatic route. E-commerce refers to buying and selling by a company on the e-commerce platform. Such companies can engage only in B2B e-commerce and not in retail trading, implying that existing restrictions on FDI in domestic trading would apply to e-commerce as well.

This is a complex issue with various kinds of models operating in the e-commerce space. There are inventory-based models and others who operate in the online market place. We have made a draft discussion paper and may look at entry barriers and sourcing requirements for companies planning to invest in the e-commerce space, said a DIPP official.

Besides, the government also fears that loopholes in the policy may lead global multi-brand retailers to invest in the online mode rather than the actual brick- and-mortar infrastructure. The issue has another complexity as apart from retail in goods, e-commerce includes financial services such as insurance and shares also.

We have to draft the guidelines very carefully as retailers may find ways of circumventing the rules and instead invest in e-commerce, the official added.

Industry body Nasscom and DIPP had earlier discussed the business models and needs of three kinds of e-commerce firms foreign players who want to invest in India, such as Amazon, pure Indian firms like Indiatimes, and Indian companies that want to raise more money by extending their businesses.