E-commerce firms feel ditched in new FDI regime | business | Hindustan Times
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E-commerce firms feel ditched in new FDI regime

business Updated: Sep 21, 2012 23:33 IST
Vivek Sinha
Vivek Sinha
Hindustan Times
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If local retailers are celebrating the government’s move to allow foreign direct investment (FDI) in multi-brand retail, their cyber cousins are in a not-so-good mood.

With the government excluding e-commerce sites from its notification in multi-brand retail FDI, such sites have little hopes of roping in foreign private equity players or forging ventures with their global counterparts.

Analysts tracking the e-commerce sector dubbed the notification as “regressive” and “illogical”.

"The policy decision is surprising," Manmohan Agarwal, CEO of Yebhi.com told HT. "We were expecting that FDI would be allowed in e-commerce sites. We are disappointed." Yebhi.com sells products such as apparel and shoes among others. http://www.hindustantimes.com/Images/popup/2012/9/22_09_12-buss25b.jpg

In fact, the core competitiveness of an e-commerce site is to offer quality products at cheaper rates than the brick and mortar store. Such sites hardly sell groceries and fresh foods, which are the hotly-debated issues and form the basis of opposition to retail FDI, said Agarwal.

“A lot of e-commerce players who had invested in their businesses to make money will now have to think about new funding routes,” Arvind Singhal, chairman of retail consultancy Technopak told HT.

But then what happens to those e-commerce firms that have already raised money overseas? "Funds from private equity players or venture capitalists came only in the back-end cash and carry operations," explained Mohit Bahl, partner at advisory firm KPMG India. "There was no fund infusion in the front-end business."

Bahl, however, added that unlike the brick and mortar retail stores it is the front end of e-commerce sites that is capital intensive.

A founder-owner of a well known online e-commerce site said the company would need to explore alternate routes of funding. "The notification has put all our expansion and funding plans in disarray," he said on the condition of anonymity.

Industry estimates put the e-commerce industry (excluding airline travel and rail tickets) at around Rs. 7,500 crore, growing at a robust 45% year-on-year.