The Centre hasn’t yet decided on whether to allow foreign direct investment (FDI) in the market place format of ecommerce, according to a senior government official.
“There was a meeting with the finance ministry but no decision has been taken. There has to be a political decision first,” Amitabh Kant, the secretary of the Department of Industrial Policy and Promotion (DIPP), told FE late Wednesday.
Another source added that while the DIPP has always been keen on permitting 100% FDI in the market-place model, the finance ministry hasn’t yet approved it. This is because a political clearance for it is to be gathered first within the BJP, given the sensitivity of the issue due to strong opposition of brick-and-mortar stores.
Allowing 100% FDI will provide a boost to e-commerce in the country, as clarity in rules will make it easier for foreign investors to invest in India’s rapidly growing market and also give a fillip to the domestic ecommerce firms that need funds for expansion. Already, some companies have raised funds from overseas investors—for instance, Flipkart has raised $3.2 billion and Snapdeal has raised $1.5 billion.
Currently, there is not much of a clarity in the FDI rules for the market place format of e-commerce. While off-line retailers have gone to the Delhi High Court, alleging that e-commerce companies have violated the FDI rules, companies like Amazon India, Flipkart and Snapdeal have maintained that they are operating within the ambit of law.
The government first allowed FDI in business to business (B2B) ecommerce in July 2000, with certain conditions, but not in retail trading. Subsequently, when the retail sector was opened up, curbs were still on FDI in B2C e-commerce. However, in November 2015, the government opened up the sector further and said any foreign entity that has been granted permission to undertake single-brand retailing will be permitted to undertake B2C e-commerce activities.
However, in response to a petition in the Delhi High Court filed by the All India Footwear Manufactures and Retailers’ Association, the DIPP had said in December that the “market place” model allegedly used by e-tailers like Amazon India, Flipkart and Snapdeal was “not recognised” in its FDI policy, and any violations of the policy would be dealt with by the competent agency — the Enforcement Directorate — under the Foreign Exchange Management Act, 1999.
