FDI tussle triggers debate on marketplace definition; Flipkart, Snapdeal oppose opening up India’s ecommerce sector to 100% FDI

ET Retail

NEW DELHI: Ecommerce companies have pushed back against traditional brick-and-mortar retailers in the policy debate on who can be labelled a ‘marketplace’, the subtext of a larger contentious issue on foreign investment in online stores.

Retailers Association of India (RAI), a lobby organisation for companies such as Reliance Retail and Future Group, has demanded that the government clarify what constitutes a marketplace and sought status equivalent to their online rivals, as several large offline retailers, too, explore opening online fronts.

“The two models of retail – online and offline – have different business models and cannot be looked upon with the same lens,” said Aamir Jariwala, secretary, E-commerce Coalition of India, which represents firms such as YepMe, Ferns n Petals and IndiaMart.

Many of these online stores that could make use of foreign capital are demanding opening up India’s ecommerce sector to 100% foreign direct investment (FDI). But larger online marketplaces such as Flipkart and Snapdeal, which are also part of the coalition, are opposing such a move before the government that is hearing various retail industry representatives before framing its policy.

Traditional retailers such as Shoppers Stop and BigBazaar, on the other hand, are putting up a united front with RAI. “A lot of our members are either already running or want to open online channels and get access to foreign capital. This ambiguity on ‘retail marketplaces’ creates a sense of risk,” said Kumar Rajagopalan, chief executive at the lobby group.

Companies such as Amazon, Flipkart and Snapdeal operate as marketplaces in India thus allowing any retailer or trader to sell goods on their platform. Companies such as Shoppers Stop, Tesco, Big Bazaar, Reliance Retail and others work only with their chosen vendors, which makes them closed marketplaces.

Snapdeal and Flipkart declined to comment for this story. Amazon India supports opening up online retail to FDI.

Offline retailers are also demanding that the government not differentiate within the retail sector by sales channel for drafting FDI regulations. “Creation of a policy on FDI just for online or offline retail is very myopic. It will create an imbalance in the sector,” Rajagopalan said. Ecommerce firms argue they it is them who are at a disadvantage. “While the current multi-brand retail trade policy allows 51% FDI and 100% for single brand, no such provision is allowed for B2C (business to consumer) ecommerce,” said Jariwala of ECI, who runs Karma Recycling, an electronics recycling and retailing venture.

Nasir Jamal, secretary general at ECI, said financial and strategic investors would flock to offline retail if the government equates online and offline retailers with respect to FDI. “Inventory-led ecommerce companies are facing a capital crunch, and are on the lookout for funds and they also need support,” he said.

“Offline and online retail is converging and the government should precipitate this by having similar policies,” said Nitin Gupta, CEO of PayU India, owned by South Africa’s Naspers Group.

India’s ecommerce trade accounts for 2% of the overall retail sector, which grosses over 31.7 lakh crore ($500 billion) annually. The country’s online retail sector grew to $12 billion last year.

RAI moved Delhi High Court last week against the government on the FDI policy in ecommerce. Court directed the government to respond within four months.

Arvind Singhal, chairman of retail advisory KSA Technopak, said the resistance from large ecommerce firms to opening up the sector is because of a fear increased competition from offline retailers. “Even I would not like other consulting companies to enter in India if I could influence regulation,” he said.

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