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eCommerce in India 2018-12-28

Impact of the Government's new FDI policy on E-commerce sector

The government barred online marketplaces from entering into exclusive deals for selling products on their platforms and said that not more than 25% discount would be allowed. Read on...

By Senior Sub-editor
Impact of the Government's new FDI policy on E-commerce sector

On 27th December government made some amendments in the foreign direct investment (FDI) policy for online retailers which are going to affect apex e-commerce websites. The government barred online marketplaces from entering into exclusive deals for selling products on their platforms and said that not more than 25% discount would be allowed.

While clearly defining e-marketplaces, the Ministry of Commerce and Industry barred such platforms from selling products offered by companies in which they own a stake. In addition to this, the e-commerce companies will not be allowed to enter into an agreement for the exclusive sale of products anymore.

Here are some of the views expressed by the e-commerce players:

Ambud Sharma, Founder of Luxury e-commerce footwear startup brand, Escaro Royale, wants to share his views in terms of Good, Bad and Ugly impact of the policy on startup and other platforms.

Sharma says, “We welcome the new policy. But this policy is laced with goodness and badness equally.

The Good: the marketplaces won't be able to promote their products only or the products from big brands backed by foreign investments. This is really good for private labels and small enterprises operating from homes/shops. This policy allows for fair competition on the marketplace that has lately become "compete-if-you-can-pay-us" platform.

The Bad: the 25% inventory displacement limit per marketplace is disturbing. Most companies focus on a couple of marketplaces to get the max efficiency. This won't be possible in the 25% cap. Vendors will need to stock more inventory to suffice the policy, and thus can risk blocking capital. Small vendors may be discouraged by this.

The Ugly: writing the policy is easy. How would this be implemented? How would the marketplace be penalized for violations? If the policy is violated, how would a small vendor see justice? Would the small claims courts be able to handle these cases efficiently? What's the course of action if the marketplace chooses to retaliate by blocking vendors and also strategically removing better-performing MSMEs to ensure that the big brands don't see much competition?

 It seems a lot is unanswered and we expect that the policy itself would be revised a few times for further clarity."

Rakesh Dugar, CMD, Mitashi Edutainment said, "The e-commerce boom witnessed in India has been phenomenal in the last few years, it was largely driven by aggressive prices and exclusive offerings, this is not healthy for the associated brands or the platforms themselves in the long run.”

Rakesh adds, “In a country where a majority of the sales are still driven by brick and mortar retail stores, the government’s announcement shows that it has studied the e-commerce business model in detail and suggested systematic provisions to be taken to ensure a more level playing field going forward and allowing fair competition between the different retail channels.

Now it remains to be seen how effective they are able to implement, monitor and control these rules and offer a level playing field for the millions of retailers of our country."

Rajiv Chugh, National Leader, Policy Advisory & Speciality Services, EY India, said, “E-commerce players need to relook there operating strategy in India on account of the new rule on cap on their equity participation by them in its suppliers' entities. Going forward, the suppliers will not be permitted to sell their products on the platform run by such marketplace entity. This will impact backend related wholesale Group entities and need to remove them from the e-commerce value chain. Time has come to look at franchise channels, rather than equity investments channels to do business in India.”

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