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Government says e-commerce companies with FDI are not permissible in India [Amazon and party will have to wait]

The Indian government which allowed up to 51 % foreign direct investment in multi-brand retail trading last week has said that multi-brand e-commerce companies with FDI will not be permitted to operate. This will negate companies like Amazon from entering India’s $ 450 bn retail industry.

In a press statement issued on Thursday, the Ministry of Commerce and Industry and the Department of Industrial Policy and Promotion said

Retail trading, in any form, by means of e-commerce, would not be permissible, for companies with FDI, engaged in the activity of multibrand retail trading.

The government is yet to come out with clear guidelines for e-commerce companies to operate in India. Indian e-tailers like Flipkart and Jabong have considerable foreign direct investment in the form of risk capital investment. However, they operate using a multi tiered structure with the investments going into an overseas entity while the front end remains an Indian company. Read the complete notification here (pdf).

Until last week, FDI was prohibited in retail trading except in single-brand retailing. Permission for 100 % FDI in single brand retailing was given earlier (conditions apply).

Last weeks announcement to allow FDI in retail was seen as a major policy reform. The government, which allowed 51 % FDI in retail said that State governments can take the final decision to allow FDI in their respective states or not. However, under free trade agreements signed by the Indian government, it is required to give national treatment to foreign businesses.

Lack of clarity on the policy front may hurt the fledgeling e-commerce industry in India. This is truly a what-the-heck moment for us. Why treat e-commerce companies any different when brick and mortar retailers like Walmart are okay?Is it because opposing states will have little power over e-commerce companies shipping into their territory? Or are there other reasons behind it?

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