FDI in Retail – is it a next wave for online retailing?

The genie is out. 51% FDI has been given cabinet approval in multi brand retailing that paves the entry of global retailing giants like Wal-Mart, Carrefour, Tesco and many others who have been waiting in sideline to venture in to juicy Indian market. In order to gauge FDI’s impact on online retail iamwire has put forth a status quo analysis.

  • It will easy out investment route in online retailing, earlier the online companies tried to work their way out and get FDI investment by making various different companies. However with some relaxation in the guidelines looks to be a good sign
  • Organized retail has got the much awaited foreign wing, hence will grow thick and fast and online retail can become an enhanced face of organized retailing. However, growth of offline stores would evolve with its own time but we may see a lot of organized retailing via online channel
  • Backend processes and infrastructure of organized retail will get stronger. 50 percent of every FDI in India would be dedicated for backend processes such as warehousing, logistics and cold storage. Investment in to back end process would surely make the inroad of online retailing easier and efficient.
  • Most likely, a large chunk of the possible investment will go to expand the Food & Grocery (F&G) category that constitutes about 35% of total retailing. Other category that will get benefitted is fashion and lifestyle. Online retail is expected to jump start these categories beyond top metros and tier I cities in India. Above all, these categories are online friendly therefore we would be able to experience vibrant actions online
  • It empowers MSMEs manufacturers and rural India as it will grow with participation of rural Indian in online space.

Amidst, cabinet approval for FDI in multi branded retailing, online expects to grow as an alternative sales channel, however, yet there are various bottlenecks on the way. Following challenges seem to persist with it:

  • According to guidelines FDI in multi brand retailing would be limited only to cities which have population of 1 million or above. Under the view of this guideline pure play retailers will have access to 53 cities – how it would be viable for online retailing with limited reach for pure play online retailers.
  • Another guideline laid by cabinet is 30% sourcing of manufactured and processed goods from MSME / SME  industry could be another serious challenges for  retailers operating in online retail ecosystem
  • The minimum Investment of $100 million for foreign players to enter Indian market could be too high for pure play online retailers to get benefited from the existing cap.

Iamwire Byte:

Iamwire is working to explore more detailed insights into how FDI will be structured for ecommerce? However, until then it does look like a reason to celebrate for online community.

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