Fearing competition, Flipkart, Snapdeal oppose 100% FDI in India’s eCommerce sector

Ready to take full advantage of the current market situation, both eCommerce companies and brick-and-mortar retailers want to make maximum profit and debating over who can be tagged as a marketplace. Both share different views over Foreign Direct Investment (FDI) in online stores.

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

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, told the Economic Times.

Among all eCommerce companies, only Amazon India supports opening up online retail to FDI.

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

Many of these online stores that could make use of foreign capital are demanding opening up India's ecommerce sector to 100% FDI. But the move is being opposed by larger online marketplaces such as Flipkart and Snapdeal. The government is hearing various retail industry representatives before framing its policy.

While, traditional retailers such as Shoppers Stop and BigBazaar 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.

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 that they will lose a good share of the market due to such policies.

Nasir Jamal, secretary general at ECAI, 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.

(Image: Indiatimes)