Indian E-tailers wary of allowing FDI in e-commerce

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Indian online retailers Flipkart and Snapdeal expressed their apprehension at a government meeting called to review if foreign investment in e-commerce should be allowed.

“The government must tread this issue with caution to ensure that there is no adverse impact on the growth of (micro, small and medium enterprises) in the country as a result of any policy change,” said a spokeswoman for electronic marketplace Snapdeal.

US-based Amazon, on the other hand, argued for 100% foreign direct investment, or FDI, in online retailers.

fdi in ecommerceIndia does not allow foreign investment in online retail companies that own inventory and sell directly to consumers, a policy that forced firms such as Flipkart to abandon their earlier inventory-based model to become electronic marketplaces. Amazon, too, follows the marketplace model in India.The BJP government is examining whether allowing FDI in e-commerce will give a backdoor entry to foreign multi-brand retailers.

The present administration is against the previous UPA government’s decision to allow 51% FDI in multi-brand retail, but is yet to come out with a notification to revoke that. It retained 51% FDI in multi-brand retail in the FDI consolidated circular issued.

A few months earlier, the government said it was committed to allowing FDI only for Indian-owned e-commerce enterprises.

The government invited online retailers and industry bodies to the meeting, to reassess its investment policy for India’s $12-billion e-commerce sector.

Companies at the meeting also raised taxation-related issues that they face in some states and sought amendment to the existing value added tax law, which does not recognize them as a service provider and requires them to pay taxes on products sold from their warehouses.

“It was the first meeting…We are not taking any position this way or that way from the ministry,” said Nirmala Sitharaman, state minister for commerce and industry who chaired the meeting.

“Many players have some issue or the other with different state governments related to tax, definition of e-commerce and so on,” she said. “So I may in fact have a lot of meetings with state governments and understand their position.”

A few Indian companies alluded that opening up the sector to foreign investment will benefit only a few global firms.

Amazon, the world’s largest e-commerce company, urged for allowing foreign investments. “Allowing FDI will positively impact infrastructure development, and small and medium manufacturers,” Amazon said in a statement.

“Global marketplaces like eBay are already operating in India,” Flipkart, Amazon’s main competitor in the country, said in a statement. “Alibaba and Rakuten can enter India, as no regulations prevent them from doing so.”

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