DIPP against allowing MNC manufacturers to sell online

NEW DELHI: A budget proposal to draw multinationals to set up manufacturing facilities in the country by offering them the incentive of online retail appears to have hit a snag.
The department of industrial policy and promotion (DIPP), the nodal body for foreign direct investment (FDI), has written to the finance ministry expressing issues in implementing the decision announced by Finance Minister Arun Jaitley in his budget speech. Adding to the already complex situation are representations made by brickand-mortar retailers after the much publicised mega sales by e-retailers, including Flipkart and Amazon.

India does not allow FDI in business-to-consumer (B2C) e-commerce, though it is permitted in business-to-business (B2B) ecommerce.

According to a finance ministry official, the DIPP has pointed out to the department of economic affairs in the finance ministry that moving ahead on the budget proposal could shift FDI emphasis away from brick-and-mortar retail that generate more jobs and compromise the objective of generating employment.

Foreign investment policy for B2C retail contains conditions aimed at strengthening manufacturing, especially the small and medium enterprises (SME) sector. In contrast, Finance Minister Arun Jaitley's budget proposal would allow manufacturing entities with FDI unrestricted singleand multi-brand retail trading through the e-commerce route, the DIPP has pointed.

Moreover, the DIPP said it would be difficult to monitor whether manufacturing units having FDI, which are also into retailing, are actually engaged in manufacturing. Given the shorter gestation lag in retailing, FDI-recipient manufacturing units may engage in retailing of products that have not been manufactured in India.

In January, the DIPP had floated a discussion paper on FDI policy for e-commerce for public comments, but is yet to take a policy call on it.

In his budget speech on July 10, Jaitley had said that FDI in the manufacturing sector was in the automatic approval list and these units would be allowed to sell products through retail, including e-commerce platforms, without needing additional clearance.

Since several manufacturers sell through their online platforms, besides retail ventures, the announcement was essentially aimed at giving clarity in the policy and encouraging foreign manufacturers keen to sell online in mobile and consumer durable space to set up factories here.

The official quoted earlier said the finance ministry is in discussions with the DIPP to address its concerns and ensure implementation of the budget announcement. The budget announcement had generated interest among a number of brand owners who are keen to sell directly through online platforms, a mode that has gained popularity in India.

India's e-commerce industry is pegged at $10 billion and said to be growing at a scorching pace.

The new government is keen to kick-start the country's manufacturing sector, which contracted by 0.7% in 2013-14 and has launched a mega initiative—‘the Make in India'.