BANGALORE: In a major reform on the eve of PM Narendra Modi's visit to Brussels and the US, the government on Tuesday allowed 100% foreign direct investment (FDI) in the marketplace format of e-commerce via the automatic route.
This is the second segment of retail to be opened up in a month. In the Budget, the government had allowed 100% FDI for marketing locally produced food items even as FDI in multi-brand retail remained on the backburner.
Tuesday's announcement was cheered by e-commerce players. Traditional brickand-mortar operators said it would bring much needed clarity in the e-commerce space in India.
The press note issued by the department of industrial policy and promotion (DIPP) said 100% FDI via the automatic route would be allowed only for e-commerce players under the marketplace model and not under the inventory-led model. This means that companies such as Amazon and Alibaba can set up an online marketplace legally now where sellers can hawk their products. But the policy does not allow Amazon or Flipkart to become a seller. Currently, WS Retail is a major seller on Flipkart's platform, which is a major seller on the Flipkart marketplace. In a bid to end the legal ambiguity over online market places, the government also came up with a clear definition of e-commerce, marketplaces and inventory-based model.
The guidelines now describe a marketplace for ecommerce as the means to provide IT platform by an e-commerce entity on a digital and electronic network to act as facilitator between buyer and seller. An inventory-led model is defined as one where the ecommerce entity owns the inventory of goods and services and sells directly to consumers. At present, leading domestic e-commerce players like Flipkart, Snapdeal, Paytm and Shopclues are majorly funded by foreign investors, which had caused strong resistance from offline retailers in the absence of a clear FDI policy. Foreign e-commerce giant Amazon operates under the marketplace model in India even though it has been pushing for a FDI nod for the inventory-led model here, much like what it does in US.
The new guidelines will motivate Chinese e-commerce giant Alibaba, which has ex pressed a strong intent to en ter India this year, to make an entry on their own, experts said. Alibaba has made investments in Snapdeal and Paytm Among the new guidelines that will see a direct impact on consumers is government stating that online market places will not be allowed to directly or indirectly influence pricing of products and services on the platform. “This could force online players to change their model as predatory pricing will no longer exist,“ Kishore Biyani, Future Group CEO told TOI.
When contacted, Flipkart declined to comment over the new guidelines. Echoing similar thoughts, Paytm founder Vijay Shekhar Sharma told TOI that brands will get more pricing power on online com merce platforms compared to the trend of deep discounting to attract consumers. Flipkart, Snapdeal and Amazon have been luring consumer with deep discounts as key strategy to fuel sales.