New FDI policy will boost e-commerce

New FDI policy will boost e-commerce

By SHAILENDRA TYAGI | NEW DELHI | 2 April, 2016
Experts feel that restrictions in the new FDI policy are in place to protect domestic players from global giants like Alibaba.
India’s $20 billion e-commerce market has reached a stage where it needs more investment, risk appetite and also some profit to grow further.
Allowing 100% FDI in India’s nascent e-commerce sector is being seen as a progressive gesture which would simplify the convoluted funding structure that has dotted the sector till now. Analysts feel that such a simplified policy would give more confidence to foreign investors regarding the safety of their investment in the country, bring in more global players with global best practices into India’s hugely under-penetrated e-commerce market. The government’s new policy of allowing 100% FDI in the marketplace model of e-commerce has been appreciated by all stakeholders who feel that the new policy will certainly help in attracting more FDI into the country, leading to the creation of more jobs while providing stimulus to Indian manufacturing.
The e-commerce sector is poised for multi-fold growth and the government has done well to dispel all ambiguities “which will now enable companies and investors to formulate long-term plans with greater certainty,” says Pawan Kaul, head, corporate affairs, Snapdeal. 
India’s $20 billion e-commerce market has reached a stage where it needs more investment, risk appetite and also some profit to grow further. This search for profit is likely to put an end to huge discounts that e-tailers have been offering to lure customers away from brick and mortar stores. “This created an imperfection in the market and the intent of the new policy is to rectify that,” says Amarjeet Singh, partner, tax at KPMG India.
With the new policy in place, India’s e-commerce market is likely to reach $50 billion by 2020 from $20 billion now, thus achieving a growth rate of over 20% year-on-year. 
With the new policy in place, India’s e-commerce market is likely to reach $50 billion by 2020 from $20 billion now, thus achieving a growth rate of over 20% year-on-year. China’s e-commerce market is valued over $650 billion.
However, some of the irritants in the new policy might restrict that expected growth. “India’s e-commerce market could have taken a quantum leap had the new policy been more thoughtful,” says Shilpa Gupta, head, retail & FMCG at FICCI. She feels that putting stringent conditions, like restraining an e-commerce player from selling not more than 25% of its sales from a single vendor is likely to put off many global players. She hopes that the progressive intent of Prime Minister Narendra Modi’s government would fix these issues. 
Many feel that these restrictions have been deliberately woven in the new policy to protect domestic players from ensuing competition from global giants like Alibaba which has ambitious plans to capture India’s market.
Despite these restrictions, Indian real estate sector is euphoric about the new policy which, it feels, would create more demand for offices and logistics real estate. Since much of the future growth of India’s e-commerce has to come from smaller towns, “we see a significant step-up in demand for warehousing spaces in and around these cities,” says Anuj Puri, chairman & country head, JLL India.
 

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