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The Ambiguity In Government’s Stance About FDI In E-Commerce Policy

There seems to be some sort of confusion on the status of foreign direct investment (FDI) in the e-commerce segment, according to two source based reports from different publications.

On Sunday, The Hindu Business Line reported that the Indian prime minister office (PMO) is keen on allowing FDI in the e-commerce segment and  National Security Adviser Shivshankar Menon has apparently asked DIPP to extend the current FDI policy for multi brand offline retail stores to e-commerce segment, citing a DIPP official. The official told the publication that they will check the feasibility and implications of allowing FDI in the e-commerce segment and respond to Menon’s proposal.

However, on Tuesday, DIPP Secretary Saurabh Chandra told Business Standard that they haven’t received any communication from the PMO on this matter and it is up to the cabinet to decide whether to allow FDI in e-commerce or not. However, it also cited a DIPP official who apparently indicated that the cabinet could shortly be taking up this matter.

Strangely, it also cites sources to mention that Menon has sent a communication supporting FDI in online retail to all the key ministries including DIPP, finance and home affairs. A government official also told the publication that a high-level coordination meeting will decide on this matter prior to the prime minster’s visit to the United States.

This has led to an ambiguity of whether the government is considering extending FDI policy to e-commerce, although it does seem to have got PMO’s endorsement, which is an improvement (sort of) from March this year, when Minister of State of Commerce & Industry, Dr. S.  Jagathrakshakan had reiterated to Lok Sabha that FDI in e-commerce is not permitted and there is no proposal under consideration to amend the policy.

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We’re of the view that there should be 100% FDI in e-commerce. Companies who want to set up businesses in the country and are ready to fulfill the set conditions, should be allowed to do so. You can’t kill an industry just because of some non-serious players, especially since e-commerce provides significantly better variety of products for the consumers and better reach for merchants.

Earlier, in March, Planning Chairman deputy chairman Montek Singh Ahluwalia had also said that e-commerce shouldn’t be discriminated and the same FDI policy should be extended to online retail. He had also mentioned that he would take up this issue with the Commerce and Industry Minister Anand Sharma, although there is no further updates on this.

The prohibition of FDI in e-commerce has forced many businesses to change business models from direct-to-consumer retail to a marketplace model (since marketplaces are allowed under the current FDI norms). Around 15-20 e-commerce businesses have shut shop or merged in the past year and few of the bigger players like Indiatimes Shopping had to scale down their operations, since the investments has significantly dried up and the existing investors playing it safe by investing in players like Flipkart and Snapdeal who are already firmly established in the country.

Related:

India Approves 51% FDI In Multi-Brand Retail
Why Not Allow FDI In E-Commerce?
A Rant On India And E-Commerce

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