Retail firms with FDI can’t sell online

DIPP officials cite regulatory issues, problems in checking inter-state transactions in e-commerce activities

The new rules that allow foreign retail chains to pick up to 51% stake in Indian supermarkets will not apply to e-commerce companies in the business-to-consumer (B2C) space. This means while the US-based retail firm Walmart can pick up a 51% stake in Bharti Retail, the JV firm cannot sell its products online through that entity. Similarly, domestic online retailer like Flipkart cannot have foreign direct investment in its B2C entity and US-based online retail firm Amazon cannot set shop in India.

However, if Amazon wants to set shop in the country it would have to change its format and do it in the brick and mortar form or be a part of some multi-layering corporate structure.

"E-commerce activities refer to the activity of buying and selling by a company through the e-commerce platform. Such companies would engage only in business-to-business (B2B) e-commerce and not in retail trading, inter-alia implying that existing restrictions on FDI in domestic trading would be applicable to e-commerce as well," the department of industrial policy and promotion (DIPP) clarified in a statement.

Explaining the reason for not allowing FDI in B2C e-commerce, DIPP officials said that it is due to problems in regulation as well as restrictions in the policy such as the states where it can be applicable. "The multi-brand retail norms require that 50% of the investments be made in the back-end infrastructure. It would be difficult to monitor their investment break-up. Further, since the option to allow FDI in retail would lie with the state governments, it would be difficult to check inter-state transactions in e-commerce activities," a DIPP official said. Even the mandatory 30% local sourcing by the firms having FDI would be difficult for pure-play e-commerce firms, the official added.

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