FDI in several sectors is an additionality of resource which helps in promoting domestic manufacture and job creation. India today needs a boost for job creation Review of the FDI policy of the country is an ongoing process and Government has taken a number of steps in the recent past to make India an attractive investment destination.The current policy in India does not allow foreign investment in the business of selling via online to consumers. There are no restrictions on FDI in the business-to-business segment. Opening up of the sector will benefit existing companies who need more capital to expand their business in a rapidly growing market, which is estimated to have expanded to $12.6 billion from $3.8 billion in 2009.
Foreign players like Amazon and eBay have been lobbying the government for a pie of this potentially big market that is expected to make up about 4% of gross domestic product by 2020. Considerations are going on to sought views on whether to restrict multi-brand online sales by foreign-funded companies to states which allow FDI in multi-brand retail. After the central government changed its policy to allow up to 51% FDI in the multi-brand retail segment, only 12 states have opened their doors to such investments.
UK-based Tesco recently announced its plans to set up India’s first FDI-funded multi-brand retail venture in partnership with the Tata-owned Trent. Considerations are on, to list the benefits and downsides of allowing FDI in e-commerce, saying while it would benefit the consumer, small traders and businesses could be impacted.
A few days back, the ED had found online retail firm Flipkart in violation of Foreign Exchange Management Act (FEMA) provisions. It is also investigating other e-commerce sites for similar violations. The problem is in the thin line between operations of a B2B (wholesale) company and a B2C (retail) company. Currently, India permits 100% FDI in B2B e-commerce activities but not in B2C companies. Players operating in the latter space have adopted the marketplace model, wherein they take order but which are filled by other domestic retailers. The problem arises when a domestic B2C e-commerce company operates through the marketplace model but uses their other FDI-funded ventures in the B2B space for retail sales.
Allowing FDI in e-commerce will provide e-commerce players complete geographical reach which will be against the spirit of FDI in multi-brand retail trade, i.e. being restricted to cities with a population of more than one million or any other city as per the choice of consenting states.Amazon had earlier informed the government about a delivery mechanism, where goods would be delivered in only the states on board.
Its clearly understood that FDI would boost infrastructure development and manufacturing, result in more efficient supply-chain management and reduce costs. However, it cautions that FDI in the sector may lead to multinationals dumping their cheaper products on the market causing a negative impact on the Indian manufacturing sector in general, and to micro, small and medium enterprises in particular. Also,the small-time businesses or kirana stores would likely be seriously hurt, leading to large-scale unemployment.