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Soon after Finance Minister Arun Jaitley concluded his Budget speech, a number of e-commerce players jumped to the conclusion that the Government had finally opened up the e-retailing sector for FDI. Statements from small e-commerce companies started pouring in expressing their delight over the purported statement, almost as if they were going to be the next recipients of foreign money. But by the evening the exuberance had turned into despair as clarity emerged.
What Jaitley said was that since FDI in the manufacturing sector is on the automatic route, companies with manufacturing units in India will be allowed to sell their products through retail including e-commerce platforms without additional approval.
What’s clear from the statement is that the bar on FDI in the online retail space continues. What’s not clear is the intention of the Government. If the objective is to promote FDI in e-retailing then the rider of having local manufacturing is clearly a dampener; and if the objective is to encourage manufacturing, then permitting online sale will probably be the last item on the “how to promote local manufacturing” list.
Take the example of the electronics segment, which is among the largest selling items on any e-commerce platform. It is also the most imported category in terms of dollar value after petroleum products. Companies such as Samsung and Nokia do some manufacturing in India but have not been incentivised enough to scale up their investments. Nokia, for example, has cut down production at its Chennai plant after being slapped with a tax notice. Allowing such companies to sell products made in India via online platforms, therefore, hardly makes much of a difference.
Instead, the Government should have outlined its policy on how it plans to open up the e-commerce sector for foreign investors. Access to internet is not governed by territorial rules. A consumer with internet connection in Delhi can buy products from e-commerce platforms in the US or UK. So it’s not clear how limiting players like Amazon and Walmart from selling their own branded products on India specific e-commerce sites can hurt. On the contrary, buyers will only benefit as they will be able to get quicker delivery and lower shipping costs for their purchases.
National Corporate Editor
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