The Prime Minister’s Office is in favour of opening up the fast growing e-retail sector to foreign direct investment — a move that will allow global majors such as Amazon and eBay to invest in the country.
National Security Adviser Shivshankar Menon, in a communication to the Industry Department, has suggested that the FDI provisions for multi-brand retail stores be extended to e-commerce as well, an official from the Department of Industrial Policy and Promotion (DIPP) told Business Line .
The NSA is preparing the agenda for Prime Minister Manmohan Singh’s scheduled meeting with US President Barack Obama on September 27 in Washington DC and wants the issue to be sorted out before the visit.
“The US Government is keen that India should open up the e-commerce sector to foreign investors as well. US companies such as Amazon and eBay have been lobbying hard for it both in the US and India,” the DIPP official said.
The DIPP will examine the feasibility and implications of allowing FDI in e-commerce and respond accordingly to the NSA’s proposal, the official added.
Both Amazon and eBay have been in talks with the Indian Government trying to persuade it to open up the sector.
Top officials from the two companies met Commerce and Industry Minister Anand Sharma during his US visit last month to discuss prospects.
Competition will rise
While allowing FDI in e-commerce will intensify competition for domestic companies such as Flipkart, Jabong and Myntra, it would allow them to openly infuse foreign funds into their operations without fear of the law. The Enforcement Directorate had started a probe against Flipkart late last year to investigate if the company received funding from foreign investors.
The Government allowed 51 per cent FDI in multi-brand retail stores in September last year, but categorically stated that foreign investments would not be allowed in e-commerce.
This was mainly done to ensure that once foreign retailers such as Walmart or Tesco set up their stores here, they do not use online channels to cater to customers in small cities, where they were not allowed to set up shop.
Menon was in the US last week to prepare for the PM’s visit next month and discuss areas of interests of both countries. “While India is eager to attract investments from India for developing infrastructure, the US wants India to open up its retail segment, including e-commerce, further and also tighten its intellectual property regime,” a Commerce Department official said.
India is trying to attract US investments in its Infrastructure Development Funds to shore up its foreign exchange reserves and steady the falling rupee.