Implications of Government Intervention in Foreign Direct Investment: the E-commerce Sector in India
Shah, Kush Hemant
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The last few decades have seen significant changes in the international investment landscape and foreign direct investment (FDI) has remained an integral part of it. Since the turn of the century, with an increase in the importance and usage of internet by businesses, the digital platforms of e-commerce have transformed the way in which firms conduct business across international borders. The laws governing the functioning of this sector play a huge role in its future growth. India has demonstrated massive growth in the last few years and its e-commerce sector, in particular, has grown markedly. Today, the sector has reached a market value of approximately US$20 billion and it is expected to reach US$120 billion by 2020. Since the liberalisation of the Indian economy in 1991, the Indian government has encouraged foreign investment in various sectors of the economy from manufacturing, infrastructure, to IT and business services. India brought further reforms in 2016 when they relaxed screening processes for foreign investors to encourage them to participate in the e-commerce sector. This recent introduction of policy reforms in the e-commerce sector has raised fears among industry experts that the policy has the potential to have negative implications in the Indian market. The aim of this dissertation is to analyse the potential consequences of the recently introduced e-commerce policy on the Indian retail sector. The research question guiding this study is “How is the recent government permission of 100% FDI in the e-commerce sector in India expected to impact the Indian retail sector?”. A qualitative analytical stance with interpretivism as the research paradigm has been adopted for this study. Within that, a thematic analysis of secondary sources of data was conducted to derive key themes and acquire a better understanding of the research topic. The results of this research study suggest that the introduction of the recent e-commerce policy has significantly changed the market conditions in the e-commerce sector in India. The policy has shown signs of reducing predatory pricing, and it has raised hopes of achieving a level playing field in the retail market. However, the policy has also brought on negative implications like the reappearance of fraudulent transactions, negative impact of increased foreign competition on homegrown companies, less e-commerce, and a continuing violation of rules. This has raised fears that the new policy is too restrictive in its effect on controlling the market, and that it will bring negative implications for the retail sector, instead of positive, in the long run. Additionally, there is also evidence of fears that the policy has sparked a speculative bubble in the retail industry, which potentially brings grave consequences for the Indian economy if and when it bursts. Therefore, it is concluded that the government of India needs to play a stronger role in controlling foreign participation in its domestic e-commerce sector and that it needs to come up with a better policy framework to control market conditions and restore equilibrium to ensure sustainable growth of the e-commerce and retail sector in India.