Amazon India has been in the news for its turbulent clashes with government tax officials. Trying to bring about a much-need truce, Amazon is now urging the government allow 49% foreign direct investment in e-tailers selling directly to consumers.
Presently, it seems like the government only has a clear stand on B2B ecommerce, allowing up to 100% FDI in that sector. The previous UPA government had even encouraged 51% FDI in multi-brand retail. However, this has been on hold since the government has changed.
Will FDI become a Trojan horse?
In India, Amazon follows the online marketplace model, allowing different vendors to use their online platform to sell their goods. This becomes a challenging decision for the BJP government to make – because allowing more FDI in ecommerce can turn out to be a double-edged sword. No doubt it will propagate a wider scope for Indian retailers to go online, but it can also become the best means for backdoor entry for foreign multi-brand players. The biggest dilemma the government will face is, will allowing more FDI in ecommerce become a Trojan horse? That is to say, will the government’s measures to protect Indian businessmen and manufacturers go to vain with FDI in ecommerce?
At the same time, the biggest online retailers in India run on the marketplace model- which allows several smaller retailers to sell their products online using these ecommerce platforms. Many have increased their sales multiple-fold and have been able to reach a much wider scope of customers. On the contrary, sellers who have only offline stores or traditional brick-and-mortar shops are urging the government to protect them against any form of ecommerce at all.
These are some of the most important concerns that the Indian government will have to weigh before taking any decision about allowing 49% in ecommerce. It now seems that the government is faced with an urgent need to acknowledge the widespread reach of online retail. It is no longer possible to avoid taking a legal or political stand on ecommerce in India, which was pending since quite a long time now.