Quote from Founder of ONEMi Abhijit Bhandari on FDI in e-commerce:
Presently two discussions are going on:
1. Product Base which is the inventory based model
2. Non Product Base which is the market based model: In case of non-product base FDI in retail is permitted upto 51%. Many companies have moved to market place model where they do not carry inventory. Marketplace models are using FDI in retail of 51% and setting up their business.
A lot of companies presently run on either the market place based model or the inventory based model.
As inventory based model is not permitted, by marrying both the models the government is considering whether to allow 51% in the inventory based e-commerce model. There is strong push from e-commerce players and industry associations to push for this . It is a good in a way as it will be bring a lot of technologies, logistics, supply chain expertise as well as a lot of new funding for SMEs.
It will be very good thing for industries, because a lot of funding will come in and will result in growth in entrepreneurs especially first generation entrepreneurs. Till now it was difficult for first generation first generation entrepreneurs to find funding. Though the barrier to entry in e-commerce is not too high, if funding is allow and regulatory framework is opened up, then lot of money will come into the industry. Now significant amount of money invested, but only in a handful of companies. In order for it to expand and allow investments into lot of SMEs and first generation entrepreneurs to access the capital, e-commerce sector must be opened up.
There is talk to allow FDI between 51% and 74%, which should be allowed via the automatic route which we hope will happen soon.
Presently if you are not a market place, it is very hard to get FDI investment. Everybody is moving on market place model. We are hoping that between 51% to 74% would be allowed through automatic route. There are opposition, by some of big e-commerce companies for not allowing it. They feel that we need little more time to scale up in order to compete with global giants. The overall majority would like it to be 51% to 74% through the automatic route and also promote some domestic sourcing. There can be a clause of 15% to 30% of domestic sourcing requirement along with the opening of the FDI rules.
We hope that this will happen as it will increase lot of funding and lot of first generation entrepreneurs will start companies. This will be a big boost for India, as it creates 1000’s of new jobs.
It’s high on priority and we are hoping that the government will take a decision soon. The benefits are immense.
Around the world Indonesia, Malaysia, China and a lot of developing countries have allowed FDI in e-commerce.
Amazon has opened in India in more indirect way. They entered via a market place and not an inventory based model.
We are hoping that the government take a more liberal and open view for FDI in e-commerce.