By Saurabh Gandhi

Global online retailers would be listening with bated breath as Arun Jaitley, the Indian Finance Minister will rise in the Parliament to present his government’s maiden budget on the 10th of July, 2014. Steps to revive the moribund economy are supposed to be on the anvil. One among these is allowing FDI (Foreign Direct Investment) in E-Commerce. The Department of Industrial Policy and Promotion (DIPP) has already released a discussion paper on ‘FDI in E-Retail’, signaling the government’s intent to take the advantage of foreign retailers’ interest in the Indian e-commerce sector, which is expected to grow to $22 billion or over 15% of the organized retail market in five years .

Till now, FDI in E-Commerce is restricted to the business-to-business (B2B) model. Global E-retailers like ebay and Amazon have entered the Indian market but they are not allowed to function in the business-to-consumer (B2C) model. They are forced to act as a marketplace, enabling sale of products between buyers and sellers. Thus, if the government opens the gates for foreign investment in the B2C business model, it will not only attract the existing global companies to ramp up their existing investments but also encourage new players to enter the Indian market. But is FDI in E-Commerce a bane or a boon?

Firstly, increased investment in the retail sector would act as a catalyst in the manufacturing sector. This is noteworthy, considering the present state of the manufacturing sector, the revival of which is necessary for any long-run recovery to take place in the economy as a whole. Secondly, the entry of globally established players will lead to the development of a strong supply-chain network in the country, bringing more and more people (both consumers and producers) into the organized retail segment. Both the above factors will also work in tandem to generate the much needed employment in the country.

Like FDI in a multi-brand retail, which created a furor, there are discordant voices regarding FDI in e-commerce too. The first and the most important fear is that it will harm the business of the brick and mortar stores as the local shopkeepers will find it hard to match the global giants in terms of technology and pricing. The other argument against allowing FDI in E-commerce is that this may lead to the emergence of monopolies in the Indian retail sector as it is still in a blossoming stage. Also, this will be a virtual u-turn of the anti-FDI in multi-brand retail stand of the Bharatiya Janata Party (BJP) (leading the government at present) as FDI in E-commerce will enable the global retailers to reach far and wide across the country. This is different from the present scenario, when FDI in multi-brand retail is allowed only in cities with a population of more than one million, that too, only with concurrence of the state government.

It would be worth to watch whether the Narendra Modi government bites the bullet or drags its heels. Recent decisions, such as the rail fare hike and the ongoing monthly increases in the price of diesel to reduce the subsidy bill give us an indication that the government is not afraid to take politically tough decisions. This coupled with one of the Prime Minister’s statements (while he was on the campaign trail for the Lok Sabha Elections) to the traders community (“Our children have spread information technology all across the globe. We have to accept science and technology to improve our businesses,” he said to the trading community, asking them not to be afraid of global challenges and instead boost online trade) point towards a future where Indians could order stuff from big global online retailers.

A commerce graduate from St. Xavier’s College, Kolkata, Gandhi is a politics enthusiast. He has been an intern at Youth-Ki-Awaaz and has a keen interest in current affairs. Innovation in India’s education system and gender equality are issues which are very close to his heart. When not following news, he is either reading or crossing movies off his “To see list”. A self confessed social media addict, Gandhi can be reached on Twitter @saurabhgandhi92. Call him mad and he will love you for the rest of your life.

Posted by The Indian Economist | For the Curious Mind