Narendra Modi likely to allow FDI in e-commerce in Budget, move to benefit online retailers Amazon, eBay

Jun 04 2014, 20:37 IST
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India currently bans global online retailers from selling goods directly to customers. India currently bans global online retailers from selling goods directly to customers.
SummaryMove on FDI first tangible signs of economic reform by business-friendly PM Narendra Modi.
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PM Narendra Modi's NDA government could allow global online retailers such as Inc to sell their own products as early as next month, removing restrictions on foreign direct investment (FDI) that have held back competition in one of the world's biggest, and most price-sensitive, retail markets.

The decision, which is likely to be announced in or alongside the Union Budget, is one of the first tangible signs of economic reform by the business-friendly government of Prime Minister Narendra Modi, who was sworn in 10 days ago.

The move could allow the government to circumvent political opposition to opening up India's $500 billion retail sector to global retail giants such as Wal-Mart Stores Inc.

Four people privy to discussions within the government told Reuters that officials believed a more robust online retail sector would spur manufacturing and consumption, helping revive an economy that has grown at below 5 percent for two years, the longest period of sub-par expansion since the late 1980s.

"Most stakeholders support FDI (foreign direct investment)," said a senior government official, referring to e-commerce. "We have pitched for opening it up completely."

Industry surveys say e-commerce could contribute up to 4 percent to India's economy by 2020 from under one percent now.

The official, like others who spoke to Reuters on the move, declined to be named because the matter was confidential. When asked about the decision, a spokesman for India's commerce and industry ministry declined to comment.

Although New Delhi has been discussing opening up the sector since last year, the sources said a decision was imminent.

"The way the government is initiating discussion, it is very clear that they are extremely serious about it," said an executive with a global online retailer who was invited to a meeting two weeks ago between the government and foreign and domestic companies.

"They understand this will help small traders to grow their business, expand and reach out to a larger market," he said.

While Modi's Bharatiya Janata Party (BJP) has been a vocal critic of the country's multi-brand retail policy, it has remained quiet on the proposal to open up the e-commerce sector.

On the campaign trail, Modi had asked small traders not to feel intimated by big online retail chains.

"We should not worry about these things. Our children have taken IT to the world. We'll have to embrace it," he told a gathering of small traders in February.

Modi will eventually decide investment guidelines as well as the foreign

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