A recent report by Industry body ASSOCHAM states that India’s e-commerce market is likely to touch the USD38 billion mark in 2016, a huge 67 per cent jump over the USD23 billion revenues for 2015, making it one of India’s fastest growing sectors.
The surge in internet and mobile penetration, the growing percentage of the millennial population and favorable demographics are the driving force. However, given the tremendous ambiguity in policy and regulation surrounding the e-commerce sector itself, will the growth story be as smooth and rosy as projected?
Last year, there was plenty of noise about the lack of clarity on FDI norms in e-commerce, brought up primarily by brick and mortar retailers. E-commerce companies in India currently categorise themselves as a marketplaces; websites that connect buyers to sellers, offering services such as warehousing, logistics, and payments. There is no definition of an online marketplace under current FDI (foreign direct investment) laws.
Indian laws currently allow 100% foreign investment in business-to-business (B2B) e-commerce.
In November 2015, the central government allowed single-brand retailers o directly enter the online retail segment, while also creating a platform for Indian manufacturers such as Fabindia and Hidesign to boost their e-commerce business — moves that were seen as limited opening of business-to-consumer (B2C) e-commerce for overseas investors.
Starting this year, can we expect deeper regulation and monitoring of investment flows into e-commerce companies in India?
On another side, calls for regulation may become more strident, especially with reference to sensitive categories such as pharmaceuticals. In October, chemists across the country observed a one-day strike to protest a move by the government to regularize the online sale of medicines and demanded a ban on the same. And recently, the Drugs Controller General of India (DCGI) placed a temporary ban on the sale of online medicines and drugs.
While its important to keep a vigilant check on the operations of online drug retailers, what more important is to make a provision of e-pharmacies in India in order to keep a check on their functioning and can different between sale of medicines on the internet and online marketplaces that facilitate drug sale.
Having said that, it doesn’t appear all too gloomy for e-commerce companies. Recently in a pre-budget meeting with the Government, Industry bodies urged easing of FDI norms, especially in multi-brand retail, e-commerce and education. On liberalisation of FDI norms in e-commerce, FICCI has suggested that FDI should be allowed in B2C e-commerce in a phased manner and there could be a requirement to source significantly from within India to promote ‘Make in India’ and focus on preferable sourcing of certain percentage from SMEs and MSMEs.
The Department of Industrial Policy and Promotion, in response to a case filed by traditional retailers suggesting violation of FDI norms by e-commerce firms, has told the Delhi High Court that financial watchdog bodies will check for violation of policy, not the government, and FDI policy does not recognise creation of a marketplace as an economic activity.
“We were initially contemplating coming out with a definition of the marketplace. But we have dropped the idea. Technology is changing fast. It is not wise to define e-commerce companies one way or the other,” a Department of Industrial Policy and Promotion (DIPP) official was quoted as saying.