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 Any material borrowed from published and unpublished sources has been appropriately referenced.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.
Debarghya Poddar, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur.
The government has permitted 100 per cent FDI in the marketplace format of e-commerce retailing with a view to attract more foreign investments. As per the guidelines issued by the Department of Industrial Policy and Promotion (DIPP) on FDI in e-commerce, foreign direct investment (FDI) has not been allowed in inventory-based model of e-commerce.
At present, global e-tailer giants like Amazon and Ebay are operating online marketplaces in India while homegrown players like Flipkart and Snapdeal have foreign investments even as there were no clear FDI guidelines on various online retail models. To bring clarity, the DIPP has also come out with the definition of e-commerce, inventory-based model and marketplace model. Marketplace 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. A marketplace entity will be permitted to enter into transactions with sellers registered on its platform on business-to-business basis, DIPP said. An e-commerce firm, however, will not be permitted to sell more than 25 per cent of the sales affected through its marketplace from one vendor or their group companies. These new rules could potentially end the discount wars, much to the disappointment of consumers. This is because the rules now prohibit marketplaces from offering discounts and capping total sales originating from a group company or one vendor at 25%. This could, however, level the playing field with offline stores, which have witnessed a slump in footfalls corresponding to the increase in e-commerce.