India allows conditional foreign equity in e-retail

India on Tuesday permitted conditional foreign equity in the retail e-commerce segment when the products sold are also manufactured in the country, as also for single-brand foreign entities with physical retail chains that want to go for online merchandise.

The move is expected to benefit not just foreign multi-brand retail entities like amazon and e-Bay, but also single-brand overseas chains like Adidas, Ikea and Nike. Existing Indian players like Snapdeal, Myntra, BigBasket and Flipkart can also now opt for foreign equity tie-ups.

The guidelines, issued under Press Note 3 of the Department of Industrial Policy and Promotion, came after numerous submissions from stakeholders that the current policy had no clarity on the issue of foreign equity in e-commerce where the sales were made directly to customers.

As per the current foreign direct investment policy, foreign capital of up to even 100 percent is allowed under the automatic route involving business-to-business e-commerce transactions. No such foreign equity was permitted in business-to-consumer e-commerce.

But now, a manufacturer is permitted to retail its products made in the country through foreign-owned entities, even as single brand foreign retail chains that currently have brick and mortar stores can undertake direct sale to consumers through e-commerce.

As regards the Indian manufacturer, 70 percent of the value of products has to be made in-house, sourcing no more than 30 percent from other Indian manufacturers. But no inventory-based sale is allowed -- that is, such foreign retailers cannot stock products.

For such sales, the e-commerce model will include all digital and electronic platforms such as networked computers, television channels, mobile phones and extranets. The payment for such a sale will be in conformity with the guidelines of the Reserve Bank of India.

The Boston Consulting Group has estimated that India's retail market will touch $1 trillion by 2020 from $600 billion in 2015. Various other agencies have said that the e-retail component in that will reach $55 billion by 2018 from $14 billion now.