Decoding the mystery about FDI in E-Commerce MarketplacesPosted by Joe / March 31st, 2016 / No responses
With the recent announcement regarding increase in the FDI percentage in online B2B (business- to- business) marketplaces by upto 100 percent, there has been great whispers in the entire business community. All the business gurus and eCommerce experts are expressing their opinions in mixed voices. Certain eCommerce companies are hailing this big reform push by allowing 100 percent FDI in the online marketplaces while other eCommerce companies are not much enthusiastic with this move due to the non clarity of the decision and the change it would bring in the domestic market segment. Higher the number of mouths, the greater is the whispers that are causing confusion among people related to this area. Take a look at some of the major voices regarding this recent decision.
Kunal Bahl of Snapdeal has welcomed the great move of the government and expressed happiness with this recent increase in FDI norms. He made a series of tweets regarding this recent FDI decision which were as follows:
Great to see the guidelines around 100% FDI in ecomm marketplaces. Glad the govt recognises and supports an industry transforming India!
— Kunal Bahl (@1kunalbahl) March 29, 2016
Always a great feeling when you stick to the course that you believe in, pays off: Focusing on a pure marketplace and not doing inventory.
— Kunal Bahl (@1kunalbahl) March 29, 2016
Nasscom, the lobbying body for software, IT and ITes has expressed its dissent regarding the move by saying that “restricting sales of a vendor to only 25 per cent of the sales in the marketplace” can affect vendors that are selling high-value items. It also added further that “The industry might face difficulties in case of sale of electronic items, where a vendor may be offering exclusive access to certain items or discounts. Marketplaces have no control on how a product is priced and only organise ‘sales’ where vendors participate”.
In order to remove all the misconceptions regarding this recent development in the field of eCommerce marketplace, we are providing you a detailed insight about the same.
In a major path- breaking reforms in the eCommerce business segment, the Indian Government on 29th March, 2016 made a historic decision by permitting 100 percent FDI in eCommerce marketplace under automatic route. The bigger picture which comes into play here is that this relaxation in FDI is for the online marketplaces only and eCommerce companies which are operating by maintaining their store inventory for selling online products are exempted from this new reforms push. Here are the major developments that have emerged in the eCommerce services with this major decision.
- This 100 percent FDI push under automatic route is applicable for online marketplace eCommerce model only and not for the inventory based model of eCommerce or the retail sector.
- With a clear definition about the eCommerce marketplaces and inventory based eCommerce companies, the taxation provisions have been simplified to a great extent. Further, it would eliminate the chances of eCommerce companies engaging in ugly court battles with Central and various state governments.
- With new guidelines, an eCommerce entity can not allow more than 25% sales to its vendors through its eCommerce marketplace store. Thus, in other way, it is going to affect the business of companies like Flipkart and Amazon which has merchants like WS Retail and Cloudtail for their respective stores and attributes a great amount of online sales through them.
- As per the new guidelines of Department of Industrial Policy and Promotion (DIPP), it has been clearly stated that marketplaces cannot influence the prices which means that there will be hard day for eCommerce companies that were earlier providing attractive discounts to boost their online sales. This is done to provide an even online eCommerce platform to various participating players.
- The new guidelines has put the crucial metrics of goods delivery, guarantee/warranty of goods or services sold and customer satisfaction to be the sole responsibility of the seller and not of the eCommerce company. This could have a significant effect on the customer grievances redressal.
- It will now be much easier for an online marketplace funded by foreign investors to open their India specific marketplace store for connecting the buyers and sellers community together at a single platform.
- This FDI push is meant for B2B (business- to- business) model of eCommerce marketplace and not for the B2C (business- to- consumer) eCommerce model. This step was taken with the aim of protecting the interest of local traders that are involved in the brick and mortar business.
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