Government should allow FDI in B2C ecommerce retail

Government should review its position and allow foreign direct investment in B2C e-commerce retail trading, says a report.

Delhi-based think tank Pahle India Foundation has said that e-commerce has actually spurred the growth of Medium and Small Manufacturing Enterprises (MSMEs) and not disrupted the small retailers.

"It is our recommendation that the government must review its current policy and allow FDI in B2C (business to consumer) e-commerce or online," the report said.

At present, 100 per cent FDI is allowed only in business- to-business (B2B) e-commerce and not in retail segment. It said that e-commerce has had negligible negative impact on the turnover and profits of small traders and shopkeepers.

However, the report suggested that the government could put certain caveats while permitting FDI such as fixing a minimum domestic sourcing limit. "The offset policy in defence manufacturing is a striking example of how MSME manufacturing in the sector has been provided a boost. A similar kind of policy may be examined for inventory led e-commerce," it said.

It also said that policymakers should begin to look at the retail sector as a whole and not create policy arbitrages based on source of capital and format. "Financial innovations should occur that make credit available to both small traders and start-up companies. It is only if capital is available that the two can grow and compete," it added.

It said that small traders, large retailers, brand owners, and e-commerce companies must look at collaborative models to usher in the next retail evolution.

"India may well be able to increase manufacturing output and achieve higher GDP growth, all on the back of the e-commerce tide, but, for this to take place, a liberal FDI policy is imperative, beginning with the opening up of the B2C inventory led e-commerce segment to foreign investments and partnerships," it added.

It is important to understand that the e-commerce industry in India cannot reach its full growth potential with the opening up of only one segment.

India certainly needs a comprehensive retail policy, but such a policy will only make sense if it goes beyond the trivialities of types of format and FDI.

The study titled 'Computing the Economic Value Addition of FDI in E-Commerce' surveyed 1500 small traders across six mega metros and eight product categories to assess the impact. As per the report, Indian e-commerce market will reach USD 6 billion in 2015 from USD 3.5 billion in 2014.

Increasing mobile and internet penetration can provide impetus to e-commerce growth. "E-commerce has had negligible negative impact on turnover and profit of traders. Traders are willing to collaborate with e-commerce companies. The next stage of retail evolution will be collaboration between e-commerce companies and small traders," it said.