From UPSC perspective, the following things are important :
Prelims level : FDI restrictions on e-commerce
Mains level : Paper 3- FDI in e-commerce
We need a comprehensive FDI policy on trade to take care of the needs of all the stakeholders. The article highlights the issues faced by the e-commerce sector in relation to the FDI policy.
E-commerce as an enabler
- With their efficient, quick and reliable logistics network, e-commerce platforms have nudged consumer behaviour patterns from an offline to an online shopping mode.
- During the pandemic, e-commerce emerged as an enabler in ensuring the availability of essentials to the masses.
- E-commerce is going to be increasingly important in the future of retail shopping in India and the world over.
- It is estimated to become a $100 billion industry by 2024, which was at $38.5 billion until 2017.
- The trend will continue to grow with the government’s impetus on digital literacy, also supported by the increasing penetration of internet and smartphone users.
- However, what the sector lacks is the bandwidth of operation.
Issues with FDI policy for e-commerce
- In addition to the FDI Policy/FEMA, other laws such as IT Act, Consumer Protection Act, and those pertaining to IP and copyright, regulate the e-commerce sector in India.
- Of these, the FDI policy plays an important role as massive investments are needed to build and strengthen the entire ecosystem of the e-commerce sector in the country.
- FDI policies on trade have evolved over time as policy-making was done from time to time mostly responding to the needs of the market coupled with political feasibility.
- Thus, FDI policy in cash and carry or wholesale B2B operations is different (100 per cent FDI allowed under automatic route) compared to highly restrictive FDI policy on retail B2C trade.
- Similarly, an artificial distinction was created between single-brand retail and multi-brand retail as opposition to multi-brand retail was strong: 100 per cent FDI is allowed under automatic route in single-brand retail whereas FDI regime in multi-brand retail is quite restricted.
- E-commerce is not allowed under FDI policy in multi-brand retail.
- The FDI policy on e-commerce is quite different as e-commerce platforms are allowed to work only as a marketplace with permission to provide certain specified services to sellers and buyers.
- However, FDI is allowed in the inventory model when these platforms sell fresh farm produce made in India.
- There is no specific policy on FDI in e-commerce for exports.
Need for comprehensive FDI policy for trade
- The rapid expansion of the retail, organised retail as well e-commerce sector in India in the coming years will create huge opportunities for all.
- The policies that have evolved over time need a relook to balance the interests of all in a win-win policy.
- Today, our small businesses employing an exceptionally large number of workers need to use e-commerce more and more to augment their sales.
- E-commerce provides them with the means to access a much bigger market without having to overly invest in marketing. This should include more and more foreign markets.
- Consumers have benefited enormously from e-commerce.
- Also, the harmonious working of online and offline retailers is essential.
- With GST and the drive towards digitisation, more small traders need to be enabled to make the transition and take advantage of the expanding opportunities.
Consider the question “Why e-commerce sector is important for the economy of a country? What are the issues the sector faces in India?”
Public policy on e-commerce needs to place an equal premium on the views and interests of all the stakeholders in the ecosystem to strengthen our domestic businesses and create many more jobs and livelihood opportunities in the country to fulfil the dreams of Atmanirbhar Bharat.