Expediting its efforts to further relax foreign direct investment (FDI) policy regime, the government has circulated discussion paper on FDI in e-commerce among stakeholders, aiming to usher in the reform before the Lok Sabha elections.
A government official told The Indian Express that while debating as to whether FDI in e-commerce should be allowed at all, the discussion paper has sought views on the FDI cap in the sector and listed out the merits and demerits of the move.
Presenting both 51 per cent or 100 per cent cap scenario on the FDI in the sector, the paper has raised sticky questions including whether the “existing retail stores get displaced due to e-commerce”.
At present, 100 per cent FDI is allowed in business-to-business e-commerce, while business-to-consumer is prohibited.
The government allowed 51 per cent FDI in the multi-brand retail trading (MBRT) in September 2012, with riders including mandatory investment of a minimum 50 per cent towards back-end infrastructure and compulsory 30 per cent sourcing from SMEs.
“There is a fear that small shops would be impacted due to the massive reach of e-commerce companies which have the capacity to reach far-flung areas. Displacement of small stores is a big challenge,” the official said.
Another important issue raised in the paper is geographical restriction for e-commerce, as applicable in the FDI policy for MBRT. According to the policy for MBRT, states have been empowered to take decision on notification of towns and cities with population of more than 10 lakh as per 2011 census. At present, 12 states including Andhra Pradesh, Assam, Delhi, Haryana, J&K, Maharashtra, Manipur, Rajasthan, and Uttarakhand allow FDI in multi-brand retail stores.
“Multi-brand retail policy is a geographically restrictive one. We have asked if e-commerce should also be restrictive in nature.
Also, MBRT is a city-specific policy and the cities have been listed out in the FDI circular. The paper asks if the presence of e-commerce platforms should also be restricted,” the official said.
On local sourcing, the discussion paper has sought views on whether the inventory-based model on which many retailers including Amazon work, will adversely impact the SMEs and should local sourcing should be made mandatory for such companies. Nasscom has also made a strong case for local sourcing.
Currently, international players like Amazon have set up shop in India on market-place model whereby it is allowed to sell products of other companies only.
* The discussion paper has sought