New Delhi: After a year of maybe maybe-not sound bites, the Government seems ready to bite the E-commerce bullet in right earnest. The Commerce and Industry Minister, Ms. Nirmala Sitharaman has held a meeting with various stakeholders from the industry to listen to different viewpoints on issues related to FDI in B2C e-commerce. The Hon’ble Minister is expected to hold another round of meetings with stakeholders before making any decision.
Ten years ago, we witnessed a similar debate around the entry of organised retail and FDI in retail in India. Ten years hence, we have organised retail, foreign retailers and traditional retailers all co-existing; dare we even say that it is the kirana stores that continue to have the competitive edge. The debate around FDI in e-Commerce seems to be adopting a similar trajectory. Department of Economic Policy and Promotion’s (DIPP) comprehensive FDI policy of 2014 allows for 100 per cent FDI in B2B e-commerce. However, foreign e-commerce companies cannot be in the retail business, single or multi-brand, unless they opt for the marketplace model, that is, they act as platforms on which different brands can sell their products.
The reasons against allowing FDI in B2C e-commerce are broadly that FDI in B2C retail e-commerce will wipe out traditional retailers as well as domestic e-commerce companies. It is argued that if China grew its e-commerce business on B2B model, why does India need FDI in B2C or that internet penetration in India is not as high as the developed world, hence B2C will probably not work in India. Finally, when all else fails, it is said that FDI in B2C e-commerce is back door entry for multi brand retail.
Many of these arguments have been discredited since and today, we know better. Consumers buy different commodities from different store formats which is why traditional formats continue to thrive in India even as big format retail has arrived. Kirana stores continue to sell groceries and will continue to have the competitive edge they enjoyed against organised retail, against e-commerce as well. Likewise, domestic e-commerce companies will only benefit from the competition. In fact, allowing FDI will give start up e-commerce companies a chance to collaborate with foreign partners and build scale. Furthermore, the soon to be launched e-lala.com, an e-commerce venture of the Confederation of All India Traders (CAIT) is only proof of e-commerce being the next step in retail revolution – being promoted by the brick and mortar retail lobby!
India’s B2B e-commerce business is expected to grow to US $700 billion by 2020. While it is extremely important for us to grow our B2B model, it is crucial to understand that opening the B2C sector to foreign investment has the potential to contribute almost 3-4 per cent of GDP by 2020. We do not have to choose between B2B and B2C models of e-commerce, we can encourage both, have foreign investments in both and benefit from both.
Similarly, low internet penetration is no excuse to restrict FDI flows into a sector that holds enormous potential. Now with the emphasis on Digital India, this should be seen as an opportunity to develop infrastructure, both physical and technological, to ensure that rural India has access to high speed internet and grow this sector.
E-commerce is appealing and growing because it transcends borders. It also offers India’s MSMEs a window to markets beyond their existing markets. It offers consumers the chance to shop for articles across the country. The growth of local manufacturing is in sync with the trend in the last couple of years and e-commerce has contributed immensely in manufacturing growth and SMEs are the major beneficiaries of this expansion. If this sector is opened up, foreign investments will accelerate the Make in India campaign.
Indian industry is not what it was a decade ago. Today, we are capable of competing with the world’s finest on their turf. Competition has only made our domestic industries more efficient and stronger. If India does not revaluate the FDI policy on e-commerce, we will miss the bus and our chance of capitalising on the next big growth story. We should trust the resilience, competence and competitiveness of our domestic business, big and small.