Friday 19 February 2016

100% FDI in E-Commerce- Reality or Myth

In our earlier newsletter article titled ‘DIPP Replies To Delhi High Court on E-Commerce Model vis-à-vis India’s FDI’s Policy’ in Issue No.2 (vol. VIII) dated January 11, 2106 we had covered how the Department of Industrial Policy and Promotion (hereinafter referred to as the ‘DIPP’) had replied to the Delhi High Court that e-commerce websites are not recognized in India’s foreign investment direct policy (FDI). They also reportedly said that FDI is a capital account transaction and if there is any violation of FDI regulations they are covered under the penal provisions of the Foreign Exchange Management Act, 1999 and also that no FDI is allowed for a company which is engaged in multi-branding retail trading by way of e-commerce.

An E-commerce company basically provides an online marketplace where buyers can directly deal with sellers without the need for any physical infrastructure. The biggest advantage of FDI in e-commerce is that it enhances the country’s national income which spurs job creation and purchasing power of the people thereby raising the economic standard of the country. However, it has its own limitations as it carries huge amount of risk along with it.

As stated in the “Consolidated FDI Policy” released by the DIPP 100% overseas capital is allowed only in Business to Business (B2B) E-commerce platform,  not in retail trading, inter-alia implying that existing restrictions on FDI in domestic trading would be applicable to ecommerce as well. Recently, as reported by the Economic Times, an Indian daily, the Government of India is contemplating to allow 100% FDI in e-commerce platforms which would ultimately be beneficial for the country’s economy in terms of resources as well as productivity. This matter has been debated time and again and finally in a joint meeting of a group of officials from DIPP, Ministry of Corporate Affairs and Economic Affairs, this matter was rigorously argued upon and finally, DIPP suggested to approve the 100% FDI in “market place model e-commerce” activities.

The National Association of Software and Services Companies (NASSCOM) was also a part of the government’s all stakeholder meeting chaired by commerce and industry minister Nirmala Sitharaman to discuss a review of Foreign Direct Investment (FDI) in ecommerce retailing. Clarifying its position on the issue, NASSCOM stated that the policy should address diverse needs of entrepreneurs and investors supporting both scaling up of operations and entrepreneurship ideas and therefore the need for 100% foreign investments in B2C e-commerce. It is imperative that entrepreneurs, who have already made significant investments and are looking ahead to a robust growth and market share, should be allowed to seek investments to support business operations.

Concluding Remarks

In today’s Globalized marketplace, a symbiotic relationship between countries is the most beneficial way to improve trade and commerce. Economic isolation, as evinced from the, historical example of Cuba, and the contemporary situation of Iran is proof that a country cannot compromise on the benefits of multi-lateral trade. Due to trade and economics, relations among foreign countries have improved considerably and geography is no longer a barrier. In such a scenario, investment in foreign countries, or expanding the realm of business beyond one’s domestic border is a boon for any country in terms of growth, productivity and development. Thus 100% FDI in e-commerce is indeed a step taken towards the development of the country, and what shall be the eventual fruits of this endeavor is yet to be seen.

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