With its focus firm on lifting the manufacturing sector off the ground, the government has shelved the debate on relaxing the foreign direct policy (FDI) in the e-commerce segment, at least for now.
A top DIPP official told The Indian Express that the industry’s urgent demands notwithstanding, the ministry of commerce and industry is not in favour of allowing FDI in business-to-consumer (B2C) segment of the e-commerce sector at present as it wants to channelise resources on building of “physical infrastructure for boosting the manufacturing activities”. The department of industrial promotion and policy (DIPP) has conveyed its opinion to the department of economic affairs (DEA), which had sought its response on the issue.
“Currently, we need large number of physical infrastructure, not virtual infrastructure. E-commerce will not promote the physical infrastructure. Right now, our focus is on zero-defect zero-effect products,” the official said.
Further, allowing B2C FDI in the e-commerce sector “could conflict with the objective of FDI policy in multi-brand retail sector”, the official added. Even though the extant policy, introduced by UPA-II, allows 51 per cent FDI in the sector, the BJP-led government is not in favour of opening up the multi-brand retail sector arguing that the move will hurt small retailers and traders. Following the uncertainty, multi-brand retailers including Carrefour have shied away from making an investment commitment in the country.
The government has estimated that the country would need 12 million jobs every year and manufacturing will be the key sector in delivering it.
The government allows 100 per cent FDI in the business-to-business (B2B) e-commerce segment, which has provided several small and medium manufacturers a platform to sell their products through market place model. In a market place model, online retailers don’t actually stock the products rather acting as a facilitator for vendors who sell their products through their platform. In turn, the e-retailers get commission for the platform use. This, the DIPP has argued, helps the manufacturing activities.
According to the government’s estimate, the country’s e-commerce sector is expected to reach Rs 50,400 crore in terms of sales by 2015-16, excluding tickets and online sales. Multinationals including Amazon alongside the domestic players like Flipkart have been pitching for opening up of the B2C segment.
Earlier in August last year, delivering his maiden Independence Day speech, Prime Minister Narendra Modi had called for making India a manufacturing hub while making “our products which have ‘zero defect’ so that it does not come back from the world market and ‘zero effect’ so that the manufacturing does not have an adverse effect on our environment”. In September, the government launched its manufacturing campaign Make in India.
The rapidly-growing online retail sector has also been at the eye of the storm created by traditional brick-and-mortar shops, which have cried foul over the alleged ‘predatory pricing’ resorted to by the e-retailers to build customer base. In fact, offline retailers have been demanding greater oversight of the business practices of online retailers. The ministry of consumer affairs has already mooted a proposal to bring the sector under oversight of nine government agencies and regulatory bodies, including RBI, home ministry, the revenue department and the ministry of corporate affairs.