In what could be considered as a very strategic and long-term impact decision, the Indian Government is seriously considering allowing liberal FDI in Indian e-commerce segment, thereby bringing it at par with foreign investment norms in offline retail.
Why is it important?
The offline retail segment had a much liberal FDI Policy, whereas the e-commerce segment was highly restrictive, which didn’t allow much scope for large foreign companies like Walmart, Best Buy, Target and such other multi-brand Bricks-N-Clicks or Bricks-N-Mortar stores to open up their virtual stores in India. But this could change as soon as March 2014.
The Department of Industrial Policy and Promotion (DIPP), under the Commerce and Industry Ministry, is already discussing it with various interested and invested stakeholders, and the body is expected to release the Discussion Paper within the relevant stakeholders by the end of this month.
Such news will be a boon to the relatively small but quickly growing e-commerce sector in the country. Collectively, this industry has absorbed around US$ 1.7 Billion worth of venture capital and private equity investments. Majority of these funds is from foreign investors only, but is actually routed through PE/VC funds. However, the existing norms do not allow ‘Direct’ foreign investment in firms which run e-commerce sites and holds inventory of products on its own. Hence such online shopping destinations have devises innovative business structures to circumvent ban.
With these players still be showing red in their balance sheets and hoping to turn profitable only after 2 years, relaxation of the FDI norms will directly translate in more funds flowing easily and transparently. What do you think?
Image Source | screenprint