FDI in e-commerce favours consumers, startups

The Government’s decision to allow 100 per cent Foreign Direct Investment (FDI) in the market place format of e-commerce retailing has stirred reactions from all across the industry, and research analysts and e-tailers are a happy lot.

“The allowance of 100 per cent FDI, online for marketplace models is good for consumers and international retailers both. This will allow international retailers to enter the country easily. If any company wants to become operational in India, without the hassle of going through the FDI laws for offline stores, this provides them with the perfect opportunity. This will also work in favour of the consumers, who can now have access to more international brands online, than ever before,” Shabori Das, Senior Research Analyst, Euromonitor International, told Indiaretailing Bureau.

Even startups believe it will help them in focusing more on innovation and business aspect. Elaborating the benefits of 100 per cent FDI in e-commerce market place model, Amit Singh, Founder & CEO Allsupermart.com said, “It will be beneficial to players like us as it will enable in focusing more on the innovation and business aspect. Allsupermart being a market place player welcomes the Government’s announcement as it will help us grow in many ways.”

FDI has not been allowed in inventory-based model of e-commerce as per the guidelines issued by the Department of Industrial Policy and Promotion (DIPP) on FDI in e-commerce.
To bring clarity, the DIPP has also come out with the definition of ‘e-commerce’, ‘inventory-based model’ and ‘market place model’.

Market place model of e-commerce means providing of an IT platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller.

The inventory-based model of e-commerce means an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to consumers directly, according to the guidelines.

“The move will help companies in multiple ways as opening doors for foreign investments will enable them to focus on core business proposition and further access to funds. The clear definition by DIPP for market place and inventory based models of e-commerce will help in structuring the industry,” says Ujjwal Trikha, Founder & CEO, FurnitureDekho.com.

As per the guidelines, an e-commerce firm, however, will not be permitted to sell more than 25 per cent of the sales affected through its market place from one vendor or their group companies.

According to Shabori Das, “Prohibition of discounts and restricting individual vendor contribution to marketplace owner’s revenue to 25 per cent is bad for the consumers and marketplace owners. The immediate result of this would be the lack of discounts offered by marketplace companies. The deep discounts offered by the companies will no longer be possible thereby, leading to the prices online rising to the same level as offline. This will result in consumers losing some loyalty towards the channel, which will translate to lowered business for the marketplace owners. Furthermore, since the maximum a vendor can contribute to the revenue was limited to 25 per cent the marketplace companies will need to work towards increasing the vendors, which will require more effort by the companies, to find new quality sellers.”