Saying It For FDI Relaxation In E-Commerce

The 1.4 trillion dollar global e-commerce market is not evenly layered. As per 2013 WTO reports, the B2B segment was approximately 90% and the rest was B2C. There hasn’t been a perceptible change in the last two years. In India, FDI is fully allowed in the former, and the debate rages on with B2C. How far can there be a relaxation in rules to attract foreign direct investment? That, cent percent FDI be allowed in B2C as well, is what we are proposing for the 14 billion dollar Indian e-commerce industry, which is leapfrogging on its way at an annual compounded growth of 25%. Widely considered as a hotbed for entrepreneurs to set up shop and scale up exponentially in due course.
Saying It For FDI Relaxation In E-Commerce

A favourable investment climate would entail that restrictive practices be done away with, that would enthuse investors to park their money. The domestic market beckons. As the industry gears up to tap into this opportunity, policy makers must ensure there isn’t any kind of discrimination between green-field projects and the existing ones that need to be shored up. Inasmuch, e-commerce companies dealing in multi-brand or single-brand retail should be able to attract FDI in equal measure. The policy on FDI in retail gives considerable power away to states based on geographical outreach. The tenets of e-commerce is very different and any such restrictions would be a violation of the underlying spirit. However, if at some point in time e-commerce companies foray into physical retail, then naturally the FDI policy on retail would be applicable.

There are several e-commerce companies which market ethnic Indian products which are essentially single-brand entities. This is such a powerful engine that can connect small artisans to buyers in remote corners of the world. Yet again, we are faced with the notion that SMEs need visibility. They are ill-equipped to invest in complex distribution channels or in expensive marketing campaigns.

Also, restricting the nature of products being sold through e-commerce channels is not a good idea. Matured markets give way to dynamics, where consumer preference would be the sole deciding factor. The underlying caveat being, multi-brand FDI policy on retail must not be violated. The market is replete with examples of smaller e-commerce players where investment is required in stages, and not necessarily always amounting to 100 million dollars. Threshold limits on amount, or stipulation on how the funds may be deployed, should be stayed clear of.

To dovetail with the government’s renewed vigour on manufacturing, it is proposed that e-commerce companies can look to source from local companies to the extent of 30% based on value terms. Effectually, this is a fillip to Indian manufacturers and an attempt to lure them to be part of the e-commerce bandwagon. Importantly, any rider clauses on recommendatory SME participation is not something that ought to be included or even considered here. Notably, growth of e-commerce will have a positive spillover in associated industries such as logistics, online advertising, media and IT BPM. Presently, e-commerce contributes 3 – 4% of the GDP but it can go up significantly in another five years, if we are able to get it right.

Leakages that occur because of a discrete but rampant grey market, is a modern-day ill that needs to be plugged during our onward march to becoming a global powerhouse. E-commerce transactions, due to their nature of digital and financial trails, bring in a greater degree of transparency and traceability. Better governance and improved tax collections are envisaged. In addition, the consumer is able to make informed choices and draw comparisons at the click of a button. Mobile apps, another fast growing segment is a major driver for e-commerce, is re-defining the way we shop. The startup community is focused on building these applications that drive online business.

The naysayers (there are many) of relaxing the FDI norms have this ingratiating belief that it would portend the death-knell for small traders. Being unorganized, the players don’t have the wherewithal to compete with MNCs, is an argument oft-touted and doing rounds for several years now. A concern which may have little merit. Elsewhere, and especially in China, studies indicate that usually it has a complimentary effect. If volume of e-commerce increases, then brick-and-mortar retail is also favourably impacted, because of consolidation in wholesale & distribution models, which follow in its wake.

2014 will go down as a seminal year in the history of Indian e-commerce industry. Pumped up with 3 billion dollar funding from VC / PE funding, the sector is experiencing a high trajectory and global fund managers are eyeing this market with growing interest. In Asia, China & India have the fastest growing e-commerce markets. Foreign players are increasingly seen to be part of this growth story. A big opportunity for the country, and we hope the restrictive bastions will dismantle soon enough.

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