When Barack Obama welcomes Manmohan Singh to the White House on Sept. 27, the Indian prime minister will voice his concerns over the US immigration bill. In its present form, the bill makes it much more difficult for Indian tech companies to get the visas they need to bring workers into the United States.
Obama will listen. But if Singh wants his way, India might also try ceding some ground. It explicitly prohibits foreign direct investment (FDI) in e-commerce, though it’s opening up the market to foreign companies operating brick-and-mortar stores. Amazon recently set up operations in India, but for the moment, to comply with the rules, it functions only as a marketplace through which others can buy and sell items—it doesn’t sell anything itself.
India is not short of reasons to open up e-commerce. Any investment would signal confidence in the faltering economy and bring in much-needed foreign exchange; the rupee has declined 23% against the dollar in the past six months. And with an e-commerce market worth about $10 billion and growing, there is no shortage of willing investors. Wal-mart recently chipped in with a letter to India’s finance minister arguing that various sectors are “poised for exponential growth and are ripe for foreign investment, and foremost among them is e-commerce.” Indeed, some big electronics companies have already wrangled their way into the country by tying up with local distributors to flog their stuff.
Crucially, even Indian e-commerce firms would welcome foreign investment. They have a notoriously low survival rate, and those that remain are crying out for funds. Even the biggest, Flipkart, is struggling. “We need capital, no question about that. We are today sitting in a no-man’s land. We either play for growth or for survival,” Harish Bahl, an Indian investor, told the business newspaper Mint.
The prime minister is not blind to the benefits of allowing FDI in e-commerce. Indeed, he has publicly come out in favor of it. Yet the commerce ministry seems adamant, arguing foreign investment would bring few benefits and that domestic firms would suffer. The Indian bureaucrat’s protectionist instincts live on.