Retail FDI: Confusion, Disappointment and Hope

16-10-2012 |  Saswati Sunyana |    Trends

The Government's decision to introduce FDI in the retail sector has generated interest, speculations and rumors. But despite the decision to introduce FDI, the reaction to the decision has been mixed especially due to the restrictions imposed on the entry of foreign owned online eCommerce platforms. For the existing and upcoming local eCommerce players this translates to having to raise capital from strategic investors involving extremely complex restructuring. The local eCommerce players will also not be able to utilize the benefit of M&A which could pose a problem to both the investors as well as the companies.

Several top eCommerce players are surprised at the Government's decision to allow up to 51% FDI in the retail sector but leave the restrictions in place, unchanged for the eCommerce industry. There are many like Pramod Bhasin, Vice President, Genpact who feel that this move could prove to be detrimental to the growth of the country's economy. Others like Sanjeev Bikhchandani, Vice Chairman, feel that the decision will radically stunt the growth of the eCommerce sector in India.

The notification and subsequent clarification provided by the Department of Industrial Policy (DIPP) states that the FDI Policy does not allow FDI in the B2C eCommerce companies that engage in B2C eCommerce. For the local eCommerce players the notification and clarification do not provide anything new, except for the Government reiterating its stand of allowing foreign investment in B2B eCommerce and not in B2C eCommerce.

Under this stipulation the companies like Homeshop18, Flipkart and will not be able to access foreign investment since they sell their products directly to customers while companies like Ebay and Amazon can continue to have access to foreign investment because they use the marketplace model which follows the B2B eCommerce stipulations of the Government FDI policy. Ebay and Amazon hence would have no issues in continuing with their marketplace model which is also present in

Several company heads like K Vaitheeswaran, Founder and CEO, India Plaza termed the lack of activity from the Government on the FDI in the B2C segment as detrimental to the level of progress the eCommerce B2C industry in India has already achieved.

The several B2C eCommerce players in India like Karandeep Singh, CFO, Flipkart were quoted expressing hope in the Government's decision to introduce FDI in multi-brand and single brand retail segments while considering stepping up of their efforts to demand opening for foreign investment in the retail e-commerce industry.