FDI in e-Commerce – Pros and Cons and reaction by Vice President-Finance at eScan P.G Lakshminarayan:
FDI in e-commerce will boost the infrastructure development and stimulate manufacturing facilities as well as result in more efficient supply-chain management. It will lead to improvement in work culture and customer service. As it will reduce the need for middlemen, it will also lower the transaction costs, along with reduced overhead, as well as reduced inventory and labor costs. It will even provide more responsive sales and after-sales service to customers. Competitive pricing is also an advantage of FDI in e-commerce. This will result in improved customer service. E-commerce with FDI will allow help Micro, Small and Medium Enterprises (MSMEs) to enhance their reach beyond their immediate location, and help create their customer base across the globe. However, permitting foreign direct investment in e-commerce will lead to large scale job losses. Grocery stores are one of the largest sources of employment in the India. Hence, opening of e-commerce will have a serious impact on these shopkeepers leading to large scale unemployment. FDI in e-commerce will provide e-commerce players complete geographical reach. However, FDI in multi-brand retail trade (example- Amazon) has limitations in terms of delivery (logistics). The delivery of goods is facilitated only in the states on board. It is restricted to -2-cities with a population of more than one million or any other city as per the choice of consenting states. Hence, they will be affected. Also, with FDI in picture, there are chances of multinational brands dumping their cheaper products in the market, thus creating a negative impact on the Indian manufacturing sector. Hence,
precautions related to this should be practiced. Overall, FDI in e-commerce would benefit the end consumers, but will impact small traders and businesses.
Reaction on FDI in e-commerce:
We strongly believe, and are of the opinion, that FDI should be allowed for e-commerce, but with a clear mandate on what can be traded and what cannot. Local manufacturing needs to be protected, to a certain extent. Ultimately, India cannot, at this point of time, afford unbridled imports and trading of cheap items from neighboring countries, which may lead to complete shutdown of local manufacturing setups. This is the biggest risk of having uncontrolled FDI in e-commerce, that of India becoming a dumping ground for used-item imports and trading, instead of large scale exporter.