There's little reason to stop FDI in e-commerce
Chinese e-commerce giant Alibaba’s founder Jack Ma’s pledge to invest more in India's e-commerce reinforces the rising importance of allowing FDI in this sector.comment Updated: Nov 28, 2014 02:02 IST
Chinese e-commerce giant Alibaba’s founder Jack Ma’s pledge to invest more in India reinforces the rising importance of the economy. India is on course to become the fifth-largest consumer market by 2025. It is India’s interests to roll out the red carpet to investors, who cannot ignore a country where the middle class will expand to 700 million in the next 10 years. Mr Ma has been scouting for investment opportunities to drive Alibaba’s revenues following its record $25-billion initial public offer in September. His whirlwind 48-hour visit came two months after Jeff Bezos, founder and CEO of Amazon, the world’s largest online retailer, came to India, a country with a huge emerging Internet-based market and thousands of software engineers.
Under current norms, India doesn’t allow foreign direct investment in business-to-consumer e-commerce but allows it in marketplaces where third-party sellers sell directly to shoppers through e-commerce platforms. There is growing competition in the Indian e-commerce market with companies like Amazon, which entered India in 2013, stirring up the fast-expanding industry. US retail giant Walmart India has also taken its cash-and-carry wholesale stores into the virtual space such that the customers are now be able to order and buy products online and get them delivered at their doorstep. India’s e-commerce market, excluding travel services and tickets, is worth $3.1 billion and is estimated to grow to $22 billion in five years, according to CLSA’s November 2013 report. This is grossly undersized compared to China’s $300 billion market. Global giants are facing intense competition from aggressive, homegrown companies such as Flipkart, which have moved to a marketplace model to prevent flouting norms.
That brings us to the bigger question: Is it time for the government to open up the sector fully to foreign investors? There is an argument that big retail companies will endanger the lives of millions of Indian small traders. While there could be some merit in this, a ban on overseas capital in the e-commerce industry can result in a blanket blocking of best practices and technologies. In the final analysis, it can end up harming the interests of both domestic traders as well as consumers.