E-commerce: DIPP unlikely to rush to allow FDI in inventory model : 14-08-2018

Even though a task force on e-commerce has suggested that up to 49% foreign direct investment (FDI) be allowed in e-tailers holding inventory of locally produced goods, the Department of Industrial Policy and Promotion (DIPP) is unlikely to rush into effecting such a change.

Currently, up to 100% FDI is allowed in e-commerce marketplaces via the automatic route but no foreign investment is allowed in e-tailers holding inventory of goods, except in the retailing of domestically-produced food items.

The DIPP — the nodal department to formulate FDI policies for the retail sector — has no plan to ease the existing policies for e-tailers as of now, a senior official told FE. So even if the next draft policy on e-commerce suggests such a relaxation, it doesn’t guarantee a policy change automatically, he added. This is because the DIPP is learnt to have had its reservations on such a policy relaxation, given stiff opposition by brick-and-mortar stores and sensitivity attached to retail trade.

As for retail policy governing brick-and-mortar stores, while 100% FDI is allowed in single-brand retail via the automatic route, in multi-brand retailing, up to 51% of FDI is permitted, subject to government approval. Only in trading — including through e-commerce — of locally produced food products is up to 100% FDI allowed with government permission.

The task force headed by then commerce secretary Rita Teaotia last month suggested that FDI in the so-called inventory model be allowed. However, in such a case, the founder/promoter of the e-commerce player has to be a resident Indian, with its management controlled by Indians and foreign equity would also not exceed 49%, it had said.

Offline traders have already warned that they will step up agitations against this kind of a policy relaxation. As such, they have been alleging that e-tailors also hold inventory and give massive discounts using the foreign investments, thus violating the FDI policy. The extant FDI policy bars an e-commerce marketplace from influencing pricing of products either directly or indirectly through discounts, etc.

Given the gravity of the matter, commerce and industry minister Suresh Prabhu, who is heading a think tank that is entrusted with the job of finalising the country’s e-commerce policy and with which the report of the task-force was submitted, has called for further deliberations on the policy.

Although Amazon has also got approval to set up its offline retail outlets for food items as well, as per rules, it is mandated to keep its food retailing separate from other ventures. Sources had earlier said that if e-tailers like Amazon were allowed to hold inventory of all locally produced items under the FDI policy, they might not set up offline stores for only food products where margins are not so good. So the objective of improving farmers’ income by easing FDI rules for only food retail won’t yield much, they had said.

Source : Financial Express


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