Govt may open consumer e-commerce to foreign investors, increase limit in defence

At present, FDI is barred in consumer e-commerce

 

The Department of Industrial Policy & Promotion (DIPP) has suggested the government allow a minimum of 49 per cent foreign direct investment (FDI) in consumer e-commerce and up to 100 per cent in defence.

At present, FDI is barred in e-commerce companies selling directly to consumers. The government had in August increased the FDI limit in defence from 26 per cent to 49 per cent.

DIPP has given these suggestions to an inter-ministerial committee, chaired by the DIPP secretary, set up to facilitate US investments in India. The committee, which consists of secretaries from 18 ministries, held its first meeting on December 18 to deliberate on pending issues and suggestions by ministries. DIPP's suggestions are based on submissions by different American companies currently operating in India.

The commerce & industry ministry had on December 3 announced it would speed up approval for US investments, weeks after the two countries settled a global trade dispute and US President Barack Obama agreed to visit India. The inter-ministerial committee was set up to identify bottlenecks faced by US companies in India.

DIPP’s suggestion came after e-commerce giant Amazon, which has invested about $300 million in India, sought the government’s approval for further investments. At present, FDI is not permitted in consumer e-commerce companies and there also are restrictions on sourcing from local manufacturers.

Foreign e-commerce companies are allowed to operate as online marketplaces, but cannot sell directly to consumers. FDI of up to 100 per cent is permitted in business-to-business e-commerce.

DIPP’s suggestion on increasing the FDI limit in defence was based on the issues raised by Flextronics Technologies.

The inter-ministerial committee deliberated on issues faced by Amazon, Morgan Stanley, BAE Systems, Ford and eBay, among others. Representatives of these companies met the DIPP secretary earlier this month to apprise him on the bottlenecks they faced.

Ford pointed out issues of connectivity and logistics affecting its factories in Tamil Nadu and Gujarat.

BAE raised the need for a broader offset policy. Other issues included Amazon’s tax problems in Karnataka. It was argued that the Karnataka VAT laws were in conflict with central government regulations on FDI in business-to-consumer e-commerce.

According to government data, US companies invested $806 million in India in 2013-14, about six per cent of the total foreign investment in the country that year. Bilateral trade between the US and India stands at about $100 billion. A target has been set to increase this to $500 billion, though no deadline has been set for achieving it.

FDI: THE NEXT STOP

Proposals

• To allow a minimum of 49 per cent FDI in consumer e-commerce
   
• To increase FDI in defence to 100 per cent from the current 49 per cent

Present scenario

• FDI is barred for e-commerce firms selling directly to consumers
   
• FDI limit in defence stands at 49 per cent
   
• 100 per cent FDI is permitted in e-commerce marketplace model

Investments from US

• US companies have invested $806 million in India in 2013-14
   
• Bilateral trade between the US and India stands at about $100 billion

*Proposals based on deliberations from representatives of US companies such as Amazon, Morgan Stanley, BAE Systems, Ford and eBay who met DIPP secretary earlier this month