The Indian government approved FDI in multi-brand retail unto 51%, allowing International retailers to set shop in India. How this impacts e-commerce is still not clear, although a number of players in the segment have been structuring their businesses in a way where foreign investment is not directly reflected in their B2C operations. Note that the government already allows 100% FDI in business to business e-commerce ventures.
Although, companies operating in the e-commerce space are still waiting for more clarity, most have welcomed the government’s decision. Here are a few initial reactions:
Vishal Mehta, Founder & CEO of Infibeam, believes that the policy applies to e-commerce retail but he adds that not much will change with the onus being on state governments, unless more clarity is provided. “Prior to opening FDI in multi branded retail, many e-commerce ventures were able to work around multi-brand retail FDI policy.”
According to Mehta, the most commonly used workaround used by e-commerce players was setting up a B2B company where 100% FDI is allowed, and keeping inventory, technology and promoters’ ownership the in B2B company, while creating a B2C company which issues invoices and collects payments from customers; the B2B company billing B2C company at arms length.
He feels that the move is good for e-commerce start-ups as more retail brands and selection would be able to participate in the India retail story.
Mehta also adds that physical stores will not be able to cover tier 2 and 3 cities; but ecommerce will, and offer greater choice to consumers.
Mukesh Bansal, Founder & CEO, Myntra.com, said that FDI in retail will not affect the company but it welcomes the move and believes that it will be beneficial for the entire industry and will help strengthen our economy and infrastructure (supply chain). He said that the company was still awaiting formal notification from the government along with guidelines around this policy.
K Vaitheeswaran, Founder & CEO of Indiaplaza, feels that the ambiguity surrounding the impact of the policy on e-commerce must be addressed. ” E-commerce by nature is a national delivery system (except for say city based grocery websites). So,if the states have to approve retail FDI, who will e-commerce companies approach – the centre for overall approval, the state where their registered office is based or the sates where their warehouses are based?; I think a separate clarification on B2C e-commerce must be issued as soon as possible.,” he said.
He also mentioned the dual company route that e-commerce players were taking to go around restrictions. “The new law may make it easier for e-commerce companies to raise investments but the state approval is still unclear.”
He said that the sector will certainly be affected when International offline stores go online in India.
Flipkart CFO, Karandeep Singh, said that it’s a welcome move but it was too preliminary a stage to offer a perspective as the policy is still being formed. ” We do believe that FDI in multi brand retail could go a long way in improving efficiency in supply-chain and also invite investment in relevant areas, “he said. He said that the industry was still at a nascent stage and the market needs players that can invest in the ecosystem and drive the growth of the industry, and that entry of other players in the space will create a competitive landscape for the e-commerce business, eventually leading to larger benefits for the Indian customers.