FDI in Ecommerce: Understanding the opportunities, roadblocks and workarounds [#IRE 2014]

There has been a constant debate on the inclusion of FDI in Ecommerce considering the pros and cons it would bring to the segment. Recently, the department of industrial policy and promotion has also called for discussion to know the views of stakeholders.

Currently, 100% FDi is permitted in B2B or wholesale Ecommerce but not in retail trading. As per ET, opening up of the sector will benefit existing companies who need more capital to expand their business in a rapidly growing market, which is estimated to have expanded to $12.6 billion from $3.8 billion in 2009.

At the same time, allowing FDI in Ecommerce will provide e-commerce players complete geographical reach which will be against the spirit of FDI in multi-brand retail trade, i.e. being restricted to cities with a population of more than one million or any other city as per the choice of consenting states.

Recently, at iamWire’s Internet Retail Expo 2014, industry experts from BCG, D&D, Holisol, etc, put their views on the opportunities as well as roadblocks in allowing FDI in Ecommerce in India.

The panel comprises of Shrutika Varma, Special Correspondent, Business World (Moderator); Nimisha Jain, Principal, BCG; Joebin Devassy, Partner, and Anoop Raizada, Finance Director, Holisol

The discussion initially revolved around importance of FDI in a country like India, with the challenges a startup has to face due to the lack of funds. According to a 2013 report by consulting firm KPMG and the Internet and Mobile Association of India (IMAI), restrictions on FDI in inventory-based consumer Ecommerce have led to capital constraints that have put a question mark on the survival of many online retailers. The report said 70-80% of eCommerce companies were in dire need of funds.

If we have a look at the stats, in the next 5 years, we will be having 500 Mn people who will be digitally active. Of these, one third will definitely be transacting online. Saying that, putting money in this sector will definitely have a positive impact on the overall growth.

In views of Ms. Nimisha, “The opportunity is tremendous. There is a strong rationality to do this. There is tremendous logic to grow this sector, it is at a tipping point today.” However, according to Mr. Devassy, the vastness of the country is one of the biggest challenges for FDI in India. “There will be leakages in any system, what is important for business is key. There is no way eCommerce is against FDI,” he added

The panel also supported government concern about ”who is really taking the inventory risks,” as most are still not sure of the reach Ecommerce is having. Also, they believe that In India, a managed marketplace will prove to be the most suited one.

“At this moment, we need a lot of money to strengthen our back end processes. Considering a slightly risk averse domestic funding environment, FDI is a must for this sector to sustain. However, before opening up, one must think upon a policy which does not affect the existing models,” said panelists.

What if FDI is not opened up? What will happen to the e Retail scene then? “The reason will be significantly economic. Inflation, which is an important factor, will decide what will happen”, answered Mr. Devassy.

For an overview of the social media discussions around this session, see this Storify. You can also watch this three-minute trailer or the full video.

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