The Government had initially allowed FDI up to 51% in single brand retail trading (SBRT) in 2000 with the objectives of attracting foreign investment in production and marketing, improving availability of products and encouraging competitiveness among Indian enterprises. It also allowed 100% FDI in e-commerce with the restriction that the companies can engage only in Business-to-Business (B2B) e-commerce activities, that is, the trade taking place between a manufacturer and a wholesaler or between a wholesaler and a retailer. India’s FDI policy does not allow FDI in retail e-commerce activities, that is, Business-to-Consumer (B2C) e-commerce activities, where trade takes place between retailer and consumer. Companies could engage only in B2Be-commerce and not in retail trading, implying that existing restrictions on FDI in domestic multi-brand retail trading (MBRT) would be applicable to e-commerce as well.
Relaxing the FDI policy in 2012 in the trading sector, the cap on foreign equity in SBRT was removed, thereby allowing 100% foreign ownership and FDI up to 51% was allowed in MBRT. But FDI was specifically excluded from the retail e-commerce sector. It was stipulated that retail trading, by means of e‐commerce, would not be permissible for companies engaged in the activity of SBRT or MBRT. The extant FDI policy does not permit FDI in B2C e‐commerce. E-commerce activities are allowed 100% FDI cap with automatic equity entry route.
Department of Industrial Policy and Promotion and Departments of Corporate Affairs and Economic Affairs have suggested in February 2016 that 100% FDI should be allowed in the market place model e-commerce activities, with a view to attract more foreign investments. Permitting 100% FDI in the market place format of e-commerce retailing would allow FDI in retail, that is, business-to-consumer (B2C) e-commerce as well. This would focus on sourcing from manufacturers in a phased manner. The idea is to emphasize that there should be a parity between online and offline retail policy with respect to FDI levels. By broadening the scope of foreign investments in e-commerce to include inventory apart from marketplace, the government would be placing the Indian industry at par with other emerging markets where both marketplace and inventory models operate freely. As the policy is reviewed, it would focus on development and encouragement of MSME sector which is certainly the driving force behind the vision of Make in India.
The Union Budget 2016 was proposed recently, on February 29, with no changes made in the FDI policy for e-commerce, a move eagerly awaited by e-commerce companies like Flipkart, Snapdeal etc.
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