DIPP might look at Amazon's delivery plan for e-commerce FDI policy

Opening up online retail may be part of 'big deliverables' during PM-Obama meet

The Department of Industrial Policy and Promotion (DIPP), which handles the foreign investment matters of the commerce and industry ministry, might soon wipe the dust off some old files and documents, in order to prepare a Cabinet note on e-commerce. Among the documents is a presentation made by US online retailer Amazon a few months ago at DIPP to convince that the multi-brand policy conditions such as state-wise permission could be followed in the e-commerce space, too. Plus, at least two consulting firms had prepared reports and position papers on the feasibility of permitting FDI in e-commerce over the recent months. Those may also be looked into.

With action picking up at the Prime Minister’s Office (PMO) on allowing foreign direct investment (FDI) in e-commerce, a DIPP official indicated that the Cabinet could take up the matter soon.

However, DIPP Secretary Saurabh Chandra said that no communication from the PMO on the matter had reached him so far. When asked about the possibility of permitting foreign investment in online retail, Chandra said it was for the Cabinet to decide. He declined to give any timeframe by which such a policy could be framed.

According to sources, a communication supporting FDI in online retail from National Security Adviser Shivshankar Menon has been sent to all key ministries including DIPP, finance and home affairs.

The e-commerce issue is believed to have come up while discussing the agenda of Prime Minister Manmohan Singh’s meeting with American President Barack Obama in Washington DC on September 27. It is, however, unlikely that the Cabinet will clear the matter before the PM’s visit.

A PMO official dismissed the buzz on FDI in e-commerce as speculative.

According to another government official, high-level coordination meetings ahead of the PM’s visit to G-8 countries, including the US, will decide on “big deliverables” in terms of strategic and policy issues, and FDI in e-commerce is one such. Since major players such as Amazon and eBay, both American and present in India through complex marketplace format, have been in dialogue with the government for long to open the e-commerce sector.

While foreign companies cannot directly offer online retailing, there is no FDI restriction in the marketplace format, which is about offering a platform for third parties and consumers to sell and buy products.
 
Amazon, for instance, had told DIPP it had a mechanism in place by which goods could be delivered only in states that were on board or wanted to allow FDI in e-commerce. This is significant as the government did not allow foreign investment in e-commerce, while permitting up to 51 per cent FDI in multi-brand retail, citing statewise permission a hurdle for e-retail since it’s tough to have such controls online. Opposition from brick-and-mortar retail companies as well as Indian e-commerce players also played spoilsport vis-à-vis allowing FDI in online retail, according to sources. It is felt that foreign investment in online retail may not hit the kirana stores in a significant way unlike in the case of international supermarkets and, therefore, may not trigger much political controversy.

According to Arvind Singhal, founder and chairman of Technopak Advisors, it is illogical not to allow FDI in e-commerce at a time when every company is into e-play. He, however, added that if the government brings in conditions similar to those in multi-brand retail, even e-commerce FDI will be a non-starter. Although FDI was allowed in multi-brand retail last September, not even a single application has come as yet due to stringent conditions making it unviable for retailers to invest, Singhal added.