If there is one thing every startup needs to succeed — other than an innovative idea — it’s a steady and sizable flow of capital to keep all the gears in motion. On Tuesday (March 29), India took a big step forward in joining the globalized economy, as well as the startup cash flowing around it.
The New York Times reported that India’s Ministry of Commerce and Industry issued a statement confirming that it would loosen investing restrictions to allow 100 percent direct investment from foreign parties into natively grown eCommerce startups. These changes did come with limits — the startups are expressly prohibited from manipulating prices of products on their sites, and no more than 25 percent of goods on online marketplaces can come from a single merchant — and foreign investment into inventory-based eCommerce companies is still restricted, but some are still calling it a win for India‘s explosive startup scene.
“An explicit position from the government on where it stood with reference to eCommerce has been long overdue,” Vivek Gupta, partner at BMR Advisors, told NYT. “In that sense, it is good that some clarity has been provided.”
The decision comes at what may end up being a crucial point in the timeline of Indian eCommerce. Bloomberg explained that it’s only been in the last few years that startups have turned their gazes away from the densely packed cities to the rural parts of India, and the next 100 million people in India to jump on the eCommerce consumer bandwagon are expected to be from these rural communities.
Prashanth Prakash, partner at Accel Partners, explained that foreign cash can help Indian companies close the gap between city-dwelling commerce and the country kind — much like China is doing right now.
“The average spending from an eCommerce buyer in India is $250 to $300,” Prakash told Bloomberg. “Eight years ago in China, it was $400. So, there is a really huge chasm there.”
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