After FDI in e-tail is in, we’re discussing allowing this
As proposals go, you can’t fault the Department of Industrial Policy & Promotion’s (DIPP) discussion paper on allowing FDI in B2C e-commerce. It lists the pros and the cons. It talks of how the e-commerce market is growing—from $3.8 billion in 2009 to $12.6 billion in 2013, though most of this is what is called business-to-business or B2B e-commerce and doesn’t involve selling to the retail customer (B2C); the paper gives details of the way internet penetration in the country is rising and then lists the various points of view presented to it for and against B2C. So, the pro-B2C FDI lot talk about how this will boost infrastructure development as warehouses will be set up and how this will give SMEs a brand-new marketplace with great reach to sell their produce through. Those against it argue that allowing FDI in B2C will violate the spirit of FDI in multi-brand retail—so, while FDI in multi-brand retail may not be permitted in Delhi if the AAP has its way, a B2C FDI firm could sell the same wares in Delhi. There are some others that make less sense—“the infrastructure created by major e-commerce players will be captive and government will not be able to achieve its objective of creating back end infrastructure”—but the DIPP has put them all out there for people to debate.
Problem is, FDI in B2C is already here. And it’s not restricted to FDI from people who are not household names, it includes names like Amazon and eBay. So, what is the discussion paper all about? When the government allowed 100% FDI for only B2B, the smart e-tailers did a little switch around. The FDI came into a B2B firm called A. Individual customer orders, however, were placed on firm B. And once this happened, B used A’s network to store the goods and to deliver them. In the case of Amazon, it did something even easier. It just set up a platform, a virtual marketplace if you will, and leased this out to hundreds of Indian firms—so you log on to Amazon, but when you place an order for a mobile phone, you get directed to an Indian supplier who, as it happens, even sets up the supply chain and stocks the goods. Amazon gets a commission on sales, and doesn’t have to go stock goods, making it a win-win—for what it’s worth, the DIPP paper lists two types of possible FDI in B2C, the ‘market place’ model and the ‘inventory-based’ one. Though the discussion paper is largely irrelevant since the FDI is already here, India will certainly appear more investment-friendly if it allows it to come through the front door.