This content is from: Local Insights

India: Relaxing ecommerce policy

Ecommerce in India is growing exponentially in several areas, including online travel services, retail, and other services such as taxis, education, hospitality, food and drink and even secretarial support. According to industry surveys, ecommerce could represent up to four percent of India's economy by 2020, compared to less than one percent now.

India does not allow foreign direct investment (FDI) in business to consumer (B2C) ecommerce; FDI is permitted only in the business to business (B2B) segment of ecommerce and is subject to the same conditions imposed for B2B cash and carry wholesale entities. The new government is seriously considering opening FDI in the business to consumer (B2C) segment of ecommerce. E-commerce services have always been permitted whether B2B or B2C under an entirely automatic route, with no special conditions attached.

The existing regime allows global online retail giants to own 100% equity in a marketplace platform, where third-party suppliers can use such sites to sell goods directly to customers. A number of international players operate in India using this business model.

If the change is approved and notified, it will pave the way for global online retail giants to expand their business into India and sell goods directly to customers. Many feel this will positively impact the market by reaching under-served markets, thereby expanding the overall market. The change in policy will not only allow foreign retailers to expand in India, but will also make foreign capital from international markets more easily accessible by Indian ecommerce start-ups, which are struggling to survive amidst stiff competition from the marketplace business models of global retail giants, some of which are even looking to acquire smaller retailers.

Once the change is implemented, it is hoped that international players will feel more incentivised to partner with local manufacturers to source products and give a boost to the ailing manufacturing sector and provide more career and job opportunities in tier two and three cities. The new law will go a long way in eliminating middlemen and increasing competition and the quality of products, giving Indian consumers a wider choice at more competitive prices.

Sudish Sharma Sonia Abrol

Instant access to all of our content. Membership Options | One Week Trial