The Indian Government which allowed Foreign Direct Investment up to 51% in multi brand retail trading last week has decided not to allow companies with foreign direct investment (FDI) to sell their products through the Internet in India. This decision puts curtains on Amazon and other foreign ecommerce companies entering India. The Government has also prevented foreign retail companies that enter India from selling online.

The provisions are part of the notification by the industry department on the FDI policies for retail. The notification says, “Retail trading, in any form, by means of ecommerce, would not be permissible, for companies with FDI, engaged in the activity of multi-brand retail trading.”

India Digital Review spoke to some ecommerce players in the industry to understand their stand on this move by the Government.

K Vaitheeswaran, Founder and CEO, IndiaPlaza, said, “There is no fresh ban by the Government. They have simply restated the law that always existed. FDI has not been allowed in retail and B2C ecommerce was included in this. FDI was always allowed in B2B ecommerce services. All that the Government did recently was restate the same regulation with specific mention of B2C ecommerce. In any case, in its current form of 51% FDI with a rider that state government approval is also required, I do not see global giants in retail or ecommerce rushing into India any time soon.”

Cory York, Founder and CEO, SociaLinked Digital Commerce, doesn't welcome the Government’s move. “We need things to open up. Everyone knows that the hype in ecommerce has died down and the real scenario is more of a 5 year story then a 2 or 3 like everyone has been pitching. Sky high valuations are not going to happen again for a while, and there are no exits and few big cheques being written. The only way for us to last is to raise funds and hold steady, improve our service and quality to the customer. We are now starting to look at other countries in Asia for funds and growth opportunities. We need less regulations, more investor confidence, and a better ecosystem overall to grow a startup. I think we are going to see a lot of startups crash out now,” said York.

Yashish Dahiya, CEO, PolicyBazaar.com, said, "FDI in ecommerce would have greatly benefit consumers and suppliers. Ecommerce a great way to get products to remote customers, as well as help customers find difficult products. Retail businesses need a lot of cash to run. FDI investment in retail will greatly benefit the industry and help boost consumer and supplier confidence and help bring in much needed cash flows in these businesses. However, e-retailers or ecommerce websites help the product directly reach the consumers and help reduce the distribution gap. Consumers get a direct benefit of convenience, wider choices of products coupled with lower costs. Suppliers and product manufactures benefit from large case players who can help build sales volume and efficient distribution formats."

Karandeep Singh, CFO, FlipKart, said, "We are pleased that FDI in single and multi-brand retail has been allowed and applicable policy framework recently notified. With regard to ecommerce, we believe the policy for existing ecommerce players continues as-is. We continue to be in compliance with the FDI policy, before and after this notification."

Speaking on whether this will affect the investment scenario for ecommerce start-ups in India, Cory York said that FDI opening up creates a lot of exit and investment opportunities for Indian ecommerce startups. “For an ecosystem to be successful we need to have a layer of middle to top rang companies that will buy out or fund smaller startups. It’s the west that believes in acquisitions and buy outs rather then building organically in new markets. Large Indian companies believe building it themselves is the best route in most business expansions. You have very few large Indian companies buying or investing in startups. The Mind set needs to change. Reward startups that show early signs of success and view them as vehicles for expansion efforts of large companies. That is when startups start seeing success,” he added.

Vaitheeswaran of IndiaPlaza also stated that the state government rider has been added from a political point of view and that in itself will be a barrier for ecommerce giants. However, he was of the view that the regulation will have no impact on the current investment climate for ecommerce companies. Status quo will remain.