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What do experts feel about e-commerce being kept out of FDI in multi-brand retail

21 September, 2012

The government’s decision to allow FDI in multi-brand retail had left some puzzled faces on how it would impact e-commerce firms given the clauses it had pinched in (read: $100 million investment, state governments free to disallow operations of such ventures in their region). However the final notification issued by the government left no such ambiguity by keeping out e-commerce from the purview of foreign investment, even though it did not specify any reason for it.

We checked with cross section of people including e-com entrepreneurs as well as those who are closely engaged with such firms on their perspective on the government’s move. This is what they had to say:

K Vaitheeswaran, founder and CEO of oldest players in e-commerce, Indiaplaza said, “The law is the same now as it was earlier. Earlier also FDI in B2C e-commerce was not allowed and again they have made it specific with this policy. Though, I would be happy to welcome FDI in e-commerce I am not sure if there is a common expectation regarding the same in the fraternity.”

He said with the state approval clause, it would be very confusing for e-commerce people to work around that clause.

According to Vishal Mehta of Infibeam, earlier there was a work around for e-commerce companies, but now it is pretty clear that the government does not want FDI in e-commerce. “E-commerce is not all that different from physical retail because at the end of the day it’s still retailing. Hence, if FDI is allowed in retail, it should have been allowed for e-commerce as well.”

“Having said that, a lot of e-commerce companies have already taken foreign investments, which means that the current structuring of companies work. But the question is that whether it will still work going forward. Companies will have to go back to the drawing board and evaluate this.”

Alok Mital of Canaan Partners also said that if e-commerce had been included in the policy, more investments would have happened, maybe not in small companies, but in the bigger ones. He also said the $100 million investment clause does not really help e-commerce sector, especially the small companies. “Earlier, it was a gray area now it is pretty much black and white. It would have been good in some ways if FDI was allowed in e-commerce. That was what we were expecting,” he added. However, he said clauses like state approval didn’t really make sense for the e-commerce sector.

Prashant Kataria, principal at the law firm Lexygen: “In my view, instead of a blanket ban, at least the companies involved in multi-brand retail via e-commerce which could have complied with the requirements mentioned in the Press Note should have been permitted to receive FDI.”

Aashish Bhinde, ED and Head, Digital Media and Technology at Avendus: “E-commerce has been left out for now because given that implementation of this will be state-dependent, implementation for e-commerce companies will be more complex as clients can order products online from any state.”

(Edited by Prem Udayabhanu)


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What do experts feel about e-commerce being kept out of FDI in multi-brand retail

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