Despite Fears of Competition, Few Online Retailers in India Bat for FDI in E-commerce

Homegrown online retailers such as Yebhi, Myntra and a few others have come out in support of foreign direct investment in online retail, which is currently banned in India.

Online Buying ecommerceAs foreign online retailers like Amazon and eBay knock on the Indian government’s door to gain complete access to its $450 bn retail industry, a few domestic retailers are also working to pave way for the entry of foreign capital into the sector.

Homegrown online retailers such as Yebhi, Myntra and a few others have come out in support of foreign direct investment in online retail, which is currently banned in India.

“The way things are working, there is a possibility that we might see some major changes in a month or two,” Manmohan Agarwal, Founder & CEO, told NextBigWhat. Agarwal is trying to persuade the government to allow FDI in e-commerce. ”It will open new scope for our retailers and will let the market mature,” says Agarwal.

According to recent reports, the Indian government is considering a move to allow FDI in online retail ahead of Prime Minister Manmohan Singh’s meeting with US President Barack Obama later this month.

Global retail giant Amazon has been talking to the Indian government to open the FDI in the sector, just like it allowed foreign investment last year for offline retail.

India allows 100% FDI in cash and carry, online marketplaces and single brand retail. Up to 51% foreign investment is allowed in multibrand physical retail. But when it comes to multi brand retailing in ecommerce and inventory led model, its completely prohibited.

Mukesh Bansal, CEO & Co-founder, Myntra told NextBigWhat, “We want the government to treat e-commerce companies as IT / ITES companies and base policies accordingly.” E-commerce companies and various industry bodies have been talking to the government on the benefits of FDI in the sector.

While people like Manmohan are leading the initiative of FDI in ecommerce and online retail with lot of small and big players supporting him, homegrown online retailers such as Flipkart, Jabong and Snapdeal aren’t too vocal about it. E-mails sent to them went unanswered.

“Players such as Amazon and Ebay will bring best practices which are very much required in taking online retailing in India to a next level,” added Bansal.

Pradeep Katyal, CEO, Utsav Fashion is also in favor of FDI in online retail. “Going multibrand and supporting more artisans, small entrepreneurs and vendors will generate more foreign exchange money, which is anyway going to help the country,” said Katyal.

Utsav Fashion is one of the largest aggregator and curator of Indian ethnic wear. It went online in 2003 and sells under its own private label. The company earned Rs 90 cr of forex last year as 90% of its sales come from overseas. “We all know that 10 years down the line, there will be FDI, no matter what. So why not allow it now?,” he asks.

For homegrown companies that have achieved certain scale, the coming of Amazon and deep pocketed e-commerce ventures might pose a threat.

Opposition party BJP, is also giving positive vibes to the industry over the FDI issue, said Agarwal.

A senior executive at an online retail firm said that the BJP might even promise to include FDI in e-commerce in their election manifesto. He did not wish to be named. The BJP has opposed foreign investment in multi brand retailing (pdf) right from the beginning.

Recently, Medianama reported that Arvind Gupta, the National Head of BJP’s IT Cell, has indicated strong support on allowing FDI in e-commerce.

He said, “More and more businesses want to operate out of India. FDI in e-commerce is a huge issue because companies are dying here.” According to our estimates, over a 100 e-commerce companies have shut shop in the last 18 months.

How do Flipkart & Others Operate?

Some of India’s largest etailers are using a dual company structure to comply with the laws. For instance, Flipkart has incorporated a new parent company in Singapore which owns the back end and wholesale B2B operations while its has sold its front end WS Retail to a group of investors led by former OnMobile Chief Operating Officer Rajiv Kuchhal.

Rocket Internet backed Jabong has a similar structure. It runs a B2B entity by the name of Jade eServices and a B2C entity by the name of Xerion.

Snapdeal is not an exception either. It runs its wholesale operations by the name of Jasper Infotech, a marketing firm, while its customer facing business is called Spinel Tradecom.

In short, major Indian online retailers have created a complex back end and front end structure which follows all FDI norms, but the reality behind the scenes is opaque.

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