Indian govt not considering any proposal to allow FDI in e-commerce

The government is not having a relook at the current ban on foreign investment in the Indian e-commerce sector, according to S Jagathrakshakan, Minister of State for Commerce & Industry.

“Retail trading, in any form, by means of e-commerce, is not permissible for companies with FDI. No proposal for the amendment of this policy is under consideration,” a written reply from the minister to the Lok Sabha, the Lower House of the Indian Parliament, stated on Monday. Jagathrakshakan replied in relation to some representations to remove the ban on retail trading through e-commerce.

This strikes off expectations regarding policy change in the near term for a sector which has already attracted loads of venture capital and private funding in the country. Till date, Indian e-commerce firms have absorbed investments worth a little over $1 billion, according to VCCEdge, the data research platform of VCCircle.

Much of this cash has, indeed, come from foreign investors who have structured their investments to comply with the foreign investment norms.

Much of the foreign VC money has been invested in companies who are essentially wholesale retail firms supplying to Indian-owned and run websites, which are seen as the actual e-commerce firms. Since FDI up to 100 per cent is allowed in business-to-business e-commerce, the financial structuring makes them legal although foreign investment is not allowed in the sector as yet.

In another model, e-commerce firms offer their websites as a platform for others to sell to consumers, thereby operating as enablers for e-commerce, and are allowed to run their businesses.

Last September, the Indian government specifically excluded e-commerce firms from its decision to allow up to 51 per cent FDI in multi-brand retail.

This meant e-commerce firms or firms that run online retail businesses would go on following the existing corporate structuring, where the legal entity that runs the retail site is separate from the firm that has received or expects to bring in foreign capital from venture capital or private equity funds.

(Edited by Sanghamitra Mandal)

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