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Flipkart not in favour of FDI in online retail sector

 Retail News India: India’s biggest online retailer Flipkart is taking a stand against foreign direct investment in its sector, saying allowing it will benefit “only one company”, a not-soveiled reference to Amazon.

India currently does not allow foreign investment in online retail companies that own inventory and sell directly to consumers. However, this could change as early as next month, according to a report in Reuters earlier this week which said the Narendra Modi government is likely to ease restrictions and allow global online retailers to sell their own products.

“The only e-commerce player that will benefit from such a move is a company which is already operating in India as a marketplace and wants to enter the country through an inventory based model,” said a spokeswoman for Flipkart.

The Bangalore based company which moved to a marketplace model last year — where it hosts merchants selling their products instead of owning inventory — does not expect to derive any great benefit from the expected change in policy.

Since then Flipkart has received funding of around $570 million (Rs 3,300 crore), most recently from Facebook investor Yuri Milner’s DST Global. The company said its sales crossed $1 billion in March.

This has made Flipkart the leader in India’s fast-growing online retail industry that Crisil estimates will be worth ?50,000 crore in the next three years. For Amazon, which began Indian operations in June 2013, permission to stock inventory and sell directly to consumers will mean a huge shot in the arm.

In less than a year, the Seattle-based retailer has built up a marketplace that offers 1.5 crore products across 28 categories. An easing of regulations means it can operate independently and bring in processes it follows in its home markets.

“Opening up FDI would allow us to partner with local manufacturers to source products not carried by other sellers on the marketplace at lower prices,” said an Amazon spokeswoman. The furious pace of growth in online retail has seen the country’s top three portals — Flipkart, Amazon and Snapdeal — offer multiple services to consumers from same-day delivery and premium services to steep discounts.

The battle for top honours is expected to peak as Amazon extends its portfolio in the highmargin fashion segment, where Flipkart has bolstered its defences with the recent purchase of fashion portal Myntra. Investors said that opening up the sector for foreign investment will improve ancillary services in the industry, with more investors keen to back logistics companies that offer back-end support.

“Walmart, Tesco may all come and use the online route to build up the supply chain. They will be forced to think differently and do everything online,” said Mohan Kumar, executive director at Norwest Venture Partners which has backed furniture portal PepperFry. He expects investment flow to increase at least threefold after the government opens up foreign direct investment in the sector.

At present Flipkart and Snapdeal are the two India-based portals to have received the maximum funding. Together they have attracted over $1 billion of risk capital funding so far. Snapdeal declined to comment for this story.

“Amazon will be the happiest out of the bunch. They were waiting for this to be able to launch their own products in India,” said Ashish Jhalani founder of retail consultancy eTailing India. eBay, which owns an estimated onethird stake in online marketplace Snapdeal, said there is need for a carefully calibrated approach to opening up e-commerce in India to foreign direct investment.

“A balance needs to be struck between protecting the interests of small and emerging businesses in the country while providing them with the opportunity to fully benefit from the global commerce environment,” said a spokesperson. Smaller companies too are expected to gain from an easing of the regulations.

Source : economictimes.indiatimes

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