UIIC AO 2016 - Essay - FDI in E-commerce: Pros & Cons

Hello and welcome to exampundit. Here is the first Essay of the 3rd Part of UIIC AO 2016 Descriptive Contest. The winner of this topic is Bahubaali.

Foreign Direct Investment, in short FDI, is an investment made by a company or entity into a company or entity of another country. From beginning itself, FDI has been a controversial issue in international economics. Time to time, government amends the FDI policy according to market needs. Recently, government of India allowed 100% FDI under automatic route in E-commerce. E-commerce means buying and selling of goods and services including digital products over digital and electronic network.

As per the FDI policy, contained in the “Consolidated FDI policy circular 2015”, the guidelines for FDI in E-commerce sector are as follows:
  • 100% FDI under automatic route is permitted in marketplace model of e-commerce.
  • FDI is not permitted in inventory based model of e-commerce.

As the decision has come, mixed opinion has been buzzing around the globe. As a coin has two faces, it also contains two aspects:

  • There is no doubt that FDI in e-commerce will boost infrastructure development and strengthen the manufacturing sector that is what India needs.
  • With infrastructural development, employment opportunities will go rise.
  • DIPP believes that it will improve customer services, creates more responsive order taking and enhancing after-sales service to customers that is what usually lacks in India.
  • With FDI, Indian market will become more competitive resulting in more consumer penetrating and selling products/services at competitive price.
  • The greatest fear in Indian market is that FDI will take out small time shopkeepers, retailers, local “Kirana store” holders as they are not highly qualified and will not be able to compete with those giant e-commerce players.
  • Indian e-commerce market is at early stage of development. With FDI in e-commerce, global players will have adverse impact on the domestic industries. It will lead to monopolies in e-commerce.

So, it is clear that it is too early to make direct comments on recent FDI amendments. But it is also a core fact the India needs a huge investment at present time in order to strengthen Indian economy. Rest, market conditions and policies of Indian government decide the situation in better way.


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