Exclusive: India likely
to ease restrictions for foreign online retailers next
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[June 04, 2014]
By Nandita Bose and
Rajesh Kumar Singh
MUMBAI/NEW DELHI (Reuters)
- India could allow global online retailers such as
Amazon.com Inc to sell their own products as early as
next month, removing restrictions that could boost
competition in one of the world's biggest, and most
price-sensitive, retail markets.
The decision, which is likely to be announced in the budget, is one
of the first tangible signs of economic reform by the
business-friendly government of Prime Minister Narendra Modi, who
was sworn in 10 days ago.
The move is also likely to allow the government to circumvent
political opposition to opening up India's $500 billion retail
sector to global retail giants such as Wal-Mart Stores Inc.
Four people privy to discussions within the government told Reuters
that officials believed a more robust online retail sector would
spur manufacturing and consumption, helping revive an economy that
has been growing at below 5 percent for two years, the longest
period of sub-par expansion since the late 1980s.
"Most stakeholders support FDI (foreign direct investment)," said a
senior government official, referring to e-commerce. "We have
pitched for opening it up completely." Industry surveys say
e-commerce could contribute as much as 4 percent to India's economy
The official, like the people who spoke to Reuters, declined to be
named as the matter was confidential. When asked about the decision,
a spokesman for India's commerce and industry ministry declined to
The industry ministry that drafts FDI rules recently met officials
from companies including Amazon, Google, eBay Inc, Wal-Mart and
Indian e-tailer Flipkart to finalize the investment guidelines, the
Global online retailers like Amazon and eBay are currently banned
from selling products they have sourced themselves, and must rely on
third-party suppliers. Their platforms, which they own fully, are
marketplaces for these outside suppliers.
The government is likely to end this ban, paving the way for global
retailers to bring their formidable supply chain, and cheaper goods,
into India, potentially boosting consumption and benefiting small
manufacturers and traders.
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These politically influential small-scale traders have traditionally
opposed any foreign direct investment into retail, fearing they
would be eclipsed by larger global rivals.
Modi's Bharatiya Janata Party (BJP) also opposes such investments,
but the people said the government supports the online retail
expansion as global e-commerce firms would still have to rely on
small traders to generate business.
Opening up the online retail business for foreign direct investment
is also widely expected to eliminate middlemen, leading to lower
transaction, overhead, inventory and labor costs, industry officials
Modi, who last month won the first outright parliamentary majority
in three decades in Asia's third-largest economy, wants to arrest a
two-year-old economic slide by winning back domestic and foreign
Regulatory uncertainty under the previous government had prevented
foreign supermarket chains from setting up shop in the country. So
far, only Britain's Tesco PLC has announced an investment. In its
election manifesto, the ruling BJP vowed to ban foreign
(Editing by Douglas Busvine and Miral Fahmy)
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