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PM may woo US with FDI in e-commerce ventures

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PM may woo US with FDI in e-commerce ventures, mayallow 51% FDI

NEW DELHI: Overseas investment in e-commerce could be one of the bargaining chips

Prime Minister Manmohan Singh has to offer on his current trip to the US, where he is

scheduled to meet President Barack Obama and address the United Nations General

Assembly.

Indian officials have been working on a proposal to allow up to 51% foreign direct

investment in e-commerce ventures, something US retailers such as Amazon and eBay

have been lobbying hard for. Such a move will bring it on a par with FDI allowed in

multi-brand retailing.

The progress the government has made in this regard will give Singh, who arrived in the US

on Thursday, something to discuss in his interaction with CEOs of American companies

should the e-commerce issue be raised.

The Department of Industrial Policy and Promotion has also commissioned a study to

understand the structure of the industry before moving a firm proposal.

"We are certainly getting a paper prepared on the e-commerce sector. Based on that, we

will work out the policy to allow foreign investment in the sector," said a senior DIPP official.

The government allowed FDI in multi-brand retail last year, but clarified that this didn't apply

to e-commerce. However, 100% FDI is allowed in business-to-business, or B2B,

e-commerce through the automatic route.

DIPP has already held meetings with Nasscom, which has strongly recommended FDI in

e-commerce to support fund-starved Indian ventures.

"FDI is absolutely essential for the capital-hungry nature of business that requires

substantial investment in infrastructure and services," Nasscom noted in its policy suggestions to DIPP.

While online retail is increasing rapidly in volume, it's doing so on a small base, with most companies still in their investment phase as they

focus on customer acquisition. With few companies able to sustain the required burn rates, some have closed or been acquired.

Amazon, which confines itself in India to acting as a marketplace for other online sellers, has outlined the way in which it's likely to operate

if FDI is allowed. It will only have, for instance, deliveries in the states and Union territories that are open to FDI in multi-brand retail -

currently 12.

Overseas online retailers are keen on entering India because of the potential. The Indian e-commerce market has grown from $2.5 billion

in 2009 to $6.3 billion in 2011 and $14 billion in 2012. lndia has 10 million online shoppers, expanding at an estimated compounded

annual growth rate of 30%.

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NSA Sent the Note to DIPP

By 2020, e-commerce is estimated to grow to $200 billion. Ahead of Singh's US visit, National Security Advisor Shivshankar Menon had

sent a note to DIPP suggesting that FDI provisions for multi-brand retail stores be extended to e-commerce. Clarity in the policy will be a

big help, said Manmohan Agarwal, chief executive of online retailer Yebhi.com.

"We are just asking for a simple administrative clarification on where e-commerce stands. Is it Internet or retailing? If it's Internet, 100%

FDI is allowed and if it's retailing, even then 51% is allowed in multi-brand retailing," he said. "Right now, we are neither here nor there and

we are completely like an orphan."

Mukesh Bansal, founder of shopping site Myntra.com, said the issue of FDI in retail has been under discussion for some time. He's

optimistic that a positive development will emerge during Singh's visit to the US. "It's great if it happens in this trip," Bansal said. "If not, it's

just a matter of time." However, Bansal believes e-commerce can't be governed by the same set of rules that apply to FDI in multi-brand

retailing as there are different parameters for online and brick-and-mortar stores.

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