DIPP pushes for 100% FDI in marketplace e-tail

New Delhi: E-commerce companies, many of them unicorns (valued at $1 billion or more), could get full foreign direct investment (FDI) if a proposal of Department of Industrial Policy and Promotion (DIPP) passes muster.

Press Trust of India reported on Tuesday that the government was considering permitting 100 per cent FDI in the marketplace format of e-commerce to attract more foreign investments. This follows a recent meeting of top officials in DIPP, and the department of economic affairs and corporate affairs.

A DIPP official told Business Standard that the proposal to allow FDI in e-commerce marketplace had been in the works for quite some time. It is believed that while DIPP is bullish on permitting no-holds-barred FDI in the sector, finance ministry is yet to give a green light to the proposal. If it does get a go-ahead, online marketplace FDI rules would be a part of the detailed guidelines to be issued soon.           

At present, while no foreign investment is permitted in e-commerce, there are no rules for those operating in the online marketplace format. Major online players, including Flipkart, Snapdeal, Amazon.in, Shopclues and Paytm, which are funded by marquee international investors, operate as marketplace firms, thereby skirting the FDI hurdle.

E-commerce companies have been in the news for the funds they have raised from foreign investors and the high valuations that have followed.

An online marketplace is seen as a technology platform where multiple sellers are hosted. But players in this space have often been under the scanner of regulatory agencies, courts and domestic retail lobbies over the FDI loophole.

Recently, the Delhi High Court had asked the National Democratic Alliance government to probe 21 e-commerce players for alleged violation of FDI rules.  

However, clarity is expected in the online commerce space as Prime Minister Narendra Modi has backed it as a model for the future.

The recent start-up action plan, announced by the prime minister, is also meant to benefit a large number of e-commerce players among other internet companies.

Flipkart’s Sachin Bansal, Snapdeal’s Kunal Bahl, and Paytm’s Vijay Shekhar Sharma, which are all likely to benefit if 100 per cent FDI is allowed in e-commerce marketplace, had interacted with Modi at the start-up event in January.

Many of the big names in the investment world including Masayoshi Son, founder of SoftBank, too, met the prime minister at the event.

SoftBank is an investor for many top internet companies in India including Snapdeal and Ola. Ahead of the 2014 Lok Sabha election, Modi had addressed retailers and asked them to embrace technology and e-commerce.

E-commerce is growing at a fast clip in India. In 2015, the market had risen from $5 billion to $8 billion. A Goldman Sachs report has projected that e-commerce in India could breach the $100-billion mark by 2020.

As for FDI, the rules in the retail sector have remained complex and numerous, resulting in confusion. FDI norms for multi-brand retail, single-brand retail, wholesale, e-commerce, market place are all quite different from each other.

After years of a total ban on foreign investment, the United Progressive Alliance government allowed up to 51 per cent FDI in multi-brand or supermarket segment that’s operated by the likes of Walmart and Tesco.

But it was left to the states to decide who wants foreign players and who does not.

Of the other categories in retail, 100 per cent FDI is permitted in single-brand as well as in cash-and-carry or wholesale business. While no FDI is allowed in e-commerce activities, the online marketplace has been out of the purview of any rules.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.