No FDI breather for e-commerce

Though the Cabinet announced 51 per cent FDI in multi-brand retail, it has been

limited to physical stores. So the entry of foreign-owned virtual stores – online e-commerce platforms – continues to be restricted. Department of Industrial Policy and Promotions (DIPP) have clarified through a notification that foreign firms, which are merely a “listing platform for brands”, are welcome to operate in India. But, foreign firms that buy and sell any goods or services are still banned from conducting their activities. Last week, DIPP said, “e-commerce activities refer to the activity of buying and selling by a company through the e-commerce platform.”

Currently e-commerce companies have been able to circumvent FDI limits by some multi-tiered structuring. Such companies engage only in B2B e-commerce and not in retail trading. While the service delivery model doesn’t need regulatory approvals, a trading model will have to abide by the FDI regulatory norms. Which means, though Wal-Mart is welcome to invest in India, its online arm will have to face regulatory hurdles.

Companies such as eBay operate out of India as they are merely a listing platform but Amazon will not be permitted to enter India as they are buyers and sellers and have their own inventories. And if the Cabinet decides to let go off this hurdle, the state-wise approval for FDI will not let them operate smoothly because e-commerce platforms hold a corporate office somewhere, sales office in some other part and inventory in a totally different location, so they would need an all-India permit.

According to research firm Forrester, total e-commerce revenue in India is expected to increase by more than five times by 2016, from $1.6 billion(Rs 8,553 crores) in 2012 to $8.8 billion (Rs 47,044 crores) in 2016. In 2011, venture capitalists invested $ 177 million (Rs 946 crores) in e-commerce in India, it said.