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Government May Remove FDI Curbs Proposed By E-Commerce Task Force

The government may remove or substantially water down a controversial recommendation of an e-commerce task force, which sought to empower domestic founders of such companies to retain control even if they hold small stakes, as it could upset foreign investors.

Such a policy could make it difficult for e-commerce companies to raise funds from foreign investors, a government official told the paper.

“It may spur demand for similar privileges by founders of companies across sectors, leading to uncertainties about brownfield foreign direct investments (FDI) and unnecessary legal tussles. It will also give the impression that the government intends to discriminate against foreign investors when they’re being wooed under Make in India and other programmes,” he added.

This policy will hurt many Indian start-ups in need of capital through foreign funds and could also impact FDI inflows in trading (including via e-commerce), which rose 86 percent year-to-year USD 4.35 billion in FY18, analysts told the paper.

All major Indian e-commerce players have received sizeable foreign funding, including Flipkart, Paytm Mall and Ola. Foreign players have provided funds to these start-ups as they hoped to gain control of these ventures at some point, analysts said.

The Department of Industrial Policy and Promotion (DIPP) will now have a greater say in shaping this policy.

Last month, a panel of senior bureaucrats, headed by DIPP Secretary Ramesh ‘Abhishek, reviewed the task force’s recommendations and decided to meet again in a month’s time. The meeting was part of the Centre efforts to hammer out consensus on the e-commerce policy, after departments, including DIPP and the Ministry of Electronics and Information Technology, expressed reservations on certain suggestions of the task force.

The task force, headed by former Commerce Secretary Rita Teaotia, defines an e-commerce company as one where FDI is not more than 49 percent, the founder/promoter is a resident Indian and it is controlled by Indian management.

If this suggestion is scrapped, two of the main recommendations of the task force will be eliminated, the report said. Abhishek told the paper that the government is not planning to ease rules to allow FDI in B2C e-tailers even if such products are locally produced. The task force had suggested conditional approval for such e-tailers.—Money Control

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