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Govt more comfortable with ‘marketplace’ model instead of FDI in e-com

03 November, 2014

The Indian government, which was said to be readying a plan to allow foreign direct investment (FDI) in e-commerce, now seems to be more comfortable with the status quo with ‘marketplaces’ which link vendors to buyers. The decision to review a proposed opening of the online retailing to FDI comes in the midst of marketplaces attracting huge funding.

We are still examining whether FDI in business-to-consumer is required at all, because business-to-business e-commerce is thriving in India already, according to a report in Mint citing Amitabh Kant, secretary in the Department of Industrial Policy and Promotion (DIPP).

“Many critics say the current policy allows FDI in retail e-commerce through the backdoor. But this is the model on which China grew. Alibaba’s entire model is exactly the same. If Alibaba could grow in China, why shouldn’t we allow Flipkart, Snapdeal and others to grow as big as Alibaba in India,” said Kant.

The proposed move to allow FDI in B2C e-com would have brought etailing at par with physical retail where FDI up to 51 per cent is allowed subject to other riders.

Indian regulations currently does not allow FDI in multi-brand retail but firms with foreign investment can run ‘marketplaces’ which runs as virtual malls where other vendors sell to the consumers. Amazon runs a marketplace just like other foreign VC funded ventures such as Flipkart and Snapdeal or for that matter Ebay, one of the oldest online marketplaces active in India.

Amazon had launched its India marketplace last year and had been steadily gaining traction. So much so that Amazon founder and chief Jeff Bezos had recently said Indian operations might become the fastest in the company’s history to clock $1 billion in gross merchandise value.

It had also announced plans to invest $2 billion in India to take on home-grown competition from Flipkart and Snapdeal.

Its biggest local rival Flipkart had also come under the ED lens for possible violations of FDI norms. The current status of that investigation is not publicly disclosed. Flipkart, which had separated the ownership of the key vendor which earlier also used to run the site Flipkart.com, recently raised $1 billion in a record funding for an Indian tech firm and indeed one of the largest such funding rounds globally too.

Amazon had also formed a separate JV with Catamaran Ventures, the private investment arm of Infy co-founder N R Narayana Murthy to sell products on Amazon.in. This is also allowed as per current norms, provided Amazon.in does not derive over 25 per cent of its total sales from the in-house or related vendor.


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Govt more comfortable with ‘marketplace’ model instead of FDI in e-com

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