9.14. FDI in Retail – Case in point

♤ Single Brand Retail Trading: Local sourcing norms have been relaxed up to three years, with prior Government approval, for entities undertaking Single Brand Retail Trading of products having ‘state of art’ and ‘cutting edge’ technology. For such entities, sourcing norms will not be applicable up to three years from commencement of the business i.e. opening of the first store for entities undertaking single brand retail trading of products having ‘state-of-art’ and ‘cutting-edge’ technology and where local sourcing is not possible. Thereafter, sourcing norms would be applicable;

♤ Multi brand retail: It has been argued that foreign direct investment (FDI) in multi-brand retail trading cannot happen before farmers and retailers are provided enough resources to face market competition. Issues such as last-mile connectivity such as lack of back-end infrastructural support, adequate credit and financial inclusion of farmers and traders remain. India’s current FDI policy permits foreign players to hold 51 per cent stake in an Indian company, subject to government approval.

a. FDI via single brand retail in e commerce (e commerce has also been referred to as democratized commerce)

Indian e-commerce companies such as Flipkart and Snapdeal have been following the marketplace model— which was not defined—and attracting large foreign investments.

Marketplaces essentially act as a platform connecting sellers and buyers. It is an information technology platform run by an e- commerce entity on a digital and electronic network to act as a facilitator between buyer and seller.

♤ According to few reports, the share of e-commerce in retail is expected to jump from 2% in 2014 to 11% in 2019.

♤ Indian government has allowed 100% foreign direct investment (FDI) in online retail of goods and services under the so-called “marketplace model” through the automatic route, seeking to legitimize existing businesses of e-commerce companies operating in India.

♤ The new rules proposed by the government prohibit marketplaces from offering discounts and capping total sales originating from a group company or one vendor at 25%. This may have been done to level the playing field with offline stores, which have witnessed a slump in footfalls corresponding to the increase in e-commerce.

♤ Till now India has allowed 100% foreign investment in business-to-business (B2B) e- commerce but none in retail e-commerce—i.e., business-to-consumer, or B2C.

♤ DIPP has prohibited FDI in e-commerce companies that own inventories of goods and services and sell directly to consumers using online platforms.

♤ The government in the budget allowed 100% FDI in marketing of food products produced and manufactured in India.