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Indian Government prohibits FDI in e-commerce
Indian Government prohibits FDI in e-commerce
By: iMedia News Bureau

The Government of India which allowed 51% in FDI has prohibited such investments in e-commerce in both multi-brand and single-brand sectors — a move that would hit Walmart and Amazon.

The government has decided not to allow online sales by firms with foreign ownership.

“Retail trading, in any form, by means of e-commerce, would not be permissible, for companies with FDI, engaged in the activity of multi-brand retail trading,” according to the release by Government.

This means that an Amazon would not be able to either buy a local e-commerce company or set up direct operations here. The provision also bars foreign retail players such as Walmart or Carrefour from setting up online stores in India.

The new rules stipulate that foreign retailers will have to invest a minimum of $100 million, and at least 50% of the total FDI brought in will have to be invested in backend infrastructure. They will have to source 30% of products from small industry within five years of operations, and every year subsequently. 

Apart from hitting foreign e-commerce and retail firms hard, the provision on e-commerce may also crimp the plans of local e-commerce companies seeking strategic investment from foreign companies through the FDI route.

The decision is also likely to hit the plans of local e-commerce firms. The firms won’t be able to secure investment from investors via mergers and acquisitions thereby affecting venture capitalist who are largely attracted to Indian start-ups. This will eventually leave e-commerce firms with only option for raising capital from Indian investors.

Hence, online players such as Flipkart and Snapdeal will have to continue to make do with backend and B2B foreign investment, keeping the frontend clear of any FDI.

Along with retail giant Walmart, many consumer goods companies like Canon and Sony have been wanting to set up online operations in India to tap the e-commerce potential—they too have to stay away from the initiative.

According to Technopak Advisors, currently the market is pegged at $10 billion and is estimated to reach $200 billion by 2020. The figure does not include fresh FDI.