E-commerce: Foreign brands seek clarity on eligibility

The issue of eligibility for e-commerce in India increasingly seems like a jigsaw puzzle. While a section of industry sees an opportunity in Finance Minister Arun Jaitely's Budget announcement that foreign companies manufacturing in India can directly sell online without seeking additional approvals, others caution the convoluted regulations may add to the ambiguity.

A few leading international brands are planning to seek clarity on the e-commerce policy from the Narendra Modi government.

Currently, while no foreign multi-brand retail chain such as the US's Walmart or the UK's Tesco can sell their products online in India, they can offer e-commerce through the cash-and-carry, or wholesale, format. Walmart recently began a pilot in this regard in Lucknow and Hyderabad. When it comes to e-commerce, there's no bar on home-grown retailers such as Reliance Retail or Aditya Birla chains.

E-TAIL BUZZ

• Currently, while no foreign multi-brand retail chain such as the US’s Walmart or the UK’s Tesco can sell their products online in India, they can offer e-commerce through the cash-and-carry, or wholesale, format
• Walmart recently began a pilot in this regard in Lucknow and Hyderabad
• While up to 100 per cent FDI is allowed in single-brand and cash-and-carry, multi-brand foreign investment is capped at 51 per cent

As for single-brand foreign retailers, the policy says retail trading in any form by means of e-commerce isn't allowed for companies with FDI (foreign direct investment). Confirming their compliance, multinational chains such as Sweden's IKEA and H&M, in their proposals, told the government they wouldn't engage in e-commerce. However, several other foreign single brands that have entered India through the franchise route, such as Mango, Aldo, Charles & Keith, Promod, are free to sell online in the country. Foreign retailers (not franchises) mandatorily source 30 per cent of their India sales from the country.

While up to 100 per cent FDI is allowed in single-brand and cash-and-carry, multi-brand foreign investment is capped at 51 per cent.

Foreign-funded e-commerce companies, meanwhile, sell online across the country, though the rulebook does not permit foreign investment on this platform. To overcome regulatory barriers, some of these companies have created additional firms for transaction and billing, front-end and back-end. Others have shifted from an inventory-based to a marketplace model, to keep foreign money coming. The marketplace model, which is about letting multiple brands sell on an online platform, isn't covered under any e-commerce policy rule. From the US's Amazon and eBay to domestic players such as Flipkart, Myntra and Snapdeal, which have been funded by foreign private equity players - these are marketplace players. Meanwhile, many foreign brands that do not manufacture in India sell through online platforms such as Flipkart, Amazon and Snapdeal.

There are about 100,000 global brands in India in the beauty, children's clothing and leather products segments; these engage in contract manufacturing, but aren't retailers or manufacturers, says Gaurav Marya, chairman, Franchise India.

In the case of foreign companies with a manufacturing base in India, including Samsung, LG, Panasonic and Lenovo, e-commerce has been made easier, with no additional approvals required, even if they source from third parties. "This will ease our supply chain and bring more credibility for consumers," said Manish Sharma, managing director, Panasonic India. However, companies such as Sony, which don't have a manufacturing base in India, aren't allowed to sell online.

Experts say the message the government has sent through the Budget announcement on e-commerce is that manufacturing in India must be encouraged. But critics argue this might not be the right approach to boost manufacturing. "If you try to look for logic in this distinction, you won't find it. These regulations are based on convoluted distinctions," says Arvind Singhal, chairman and managing director, Technopak India.

Asked about IKEA's e-commerce strategy, a company spokesperson said the company wasn't allowed to sell online in India as of now. He, however, added IKEA was "rolling out its e-commerce plans globally and seeing good results in many markets". On India plans, he said, "It is too early to determine what the group's e-commerce strategy in India will be." The company planned to "seek better understanding about the policy from authorities and organisations concerned" in coming months, he said.

Venu Nair, India head of UK-based Marks & Spencer, said, "Currently, we are focused on store expansion in India and do not offer products online."

A lawyer associated with the entry of multinational brands in India said the reason for not allowing foreign retailers into the e-commerce space was these companies didn't add to India's infrastructure, unlike in the case of manufacturing. He added though such reasons weren't spelt out by the government in writing, this might be the message.

But there's no explanation on why e-commerce in the cash-and-carry segment will be allowed, while that in other categories wouldn't.