Indian government had started a discussion on FDI in e-commerce in January this year and it had invited comments, views and suggestions from interested parties. You can see our submission here. We asked e-commerce companies in India to send us their submissions to help with an open discussion on the topic. Here are the key points presented by Yebhi on the issue in their submission:
Allow 100% FDI: To facilitate foreign investors to make substantial investments in the Indian market it would be very beneficial to allow 100% FDI. However the local industry appreciates the government’s efforts and would also suggest a 51% automatic route for FDI in business to consumer E-commerce.
Allow everything in B2C e-commerce: B2C E-commerce should encompass all three; goods, services and intellectual property. With continuous technological advancements it will be difficult to create distinction between products and services as several products or goods are now available more in digital formats than the traditional physical format. Disallowing specific formats or excluding certain formats of products will create confusion. It will also exclude many independent creative producers of content and digital products access to online channels to promote their original ideas and creative content to larger audiences.
FDI should not be allowed for non-food category: At this juncture it could be restricted to non-food products only. The market in India has a long way to maturity for marketing of perishable items through e-commerce.
Link domestic sourcing limit to FDI: The sourcing limit could be based depending on the level of FDI. A higher FDI could entail a higher sourcing limit like 30% while a lower FDI could entail lower sourcing limit like 20%. The Indian industry would recommend practicable limits of domestic sourcing for the industry. It should not be restricted on the size but should be applicable to all manufacturers.
No physical stores: E-commerce players with FDI in inventory led processes can be restricted from establishing physical front end stores in states that do not support FDI in MBRT. Location based restriction is against the very tenets of e-commerce. The basic principle of e-commerce is to provide national and global access of products to consumers, irrespective of physical boundaries.
Why allow FDI in e-commerce: The effects of opening the sector to the economy will be far reaching.
– Business: Hundreds of millions in FDI will encourage first-generation entrepreneurs and creation of a more transparent funding structure for the domestic players.
– Jobs: An average warehouse of 1 to 2 lakh square feet size would require approximately 400 employees, direct or contract, to operate and manage it. If regulatory restrictions are eased, e-commerce companies will set up at least 15 to 20 warehouses each.
– Economy: Currently e-commerce accounts for 15-20% of the total revenues for some of the logistics companies. Their revenue from e-commerce alone may grow by 70 times to $2.6 billion by 2020.
– Consumers: Economies of scale achieved will help e-commerce companies to create better pricing structure ensuring competitive price for the customers and the manufacturers. It disrupts traditional distribution supply chain and saves costs and passes the benefits to end consumers in terms of higher discounts. As the business matures, the realized efficiencies in the business and the economies of scale, allow E-commerce players to retain customers by offering even lower prices.
– Reach: 50% purchases on e-commerce website are made by shoppers from Tier 2 and Tier 3 cities as well as by consumers in rural areas. Industry players also estimate that as e-commerce reach increases, a large portion of online shoppers (more than 60-70%) would come from beyond the top 8 metros.
– Manufacturing: FDI in B2C e-commerce will provide impetus to manufacturing, especially for the SMEs.
No minimum capitalization limit: Industry is essentially of first generation entrepreneurs and any minimum threshold will not be beneficial for Indian small startups.
If there is a threshold, the startups who require $1 or 2 million would not be able to initiate operations.