100% FDI in E-commerce

The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

Sachin Mehta, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur

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After years of lack of clarity in the way e-commerce companies worked in India, some clarity has been brought. The decision of the government to allow 100% FDI in e-commerce companies, however with certain restrictions is expected to make the whole business more regulated.

The government has allowed 100% FDI in e-commerce business with a view to attract more foreign investments. As a result of this decision the Indian players are expected to get a major boost. The growth in the e-commerce companies will have a cascading effect on the other sectors as well including manufacturing and logistics which will positively contribute to the overall growth of the economy. The new FDI ruling also lays out a well-defined meaning of the market-place and the inventory based model for e-commerce companies.

However, e-commerce firm will not be permitted to sell more than 25% of the sales affected through its market place from one vendor or their group of companies. As it turns out, the FDI ruling does not only come as a rude awakening to sellers but buyers as well. According to the guidelines, no seller has the right to revise the price of a product which ensures fair competition. This ruling could mean the end of special sale days like Flipkart’s Big Billion Day or special offers provided by the likes of Amazon, Snapdeal etc. The government has recognised the situation on the ground and tried to put in safeguards to see that growth of e-commerce doesn’t continue the way it was doing it earlier and at the same time the traditional retailers get little less competition, fewer disadvantages which started accruing to them once e-retailer came into the existence.

One of the major concerns is that Indian market is not yet ready for opening up e-retail space to foreign investors. It will seriously impair small time trading of brick and mortar stores. Small time shopkeepers are not highly qualified and will not be able to compete with sound e-retail business format.

Though, with new policy there is clarity which can assist in growth by considering all stakeholders involved in the sector. But the fact is that there are several concerns about how efficiently this policy will work and whether the foreign companies would adhere to all the guidelines being imposed.

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