30.3.16

E-Comm Marketplaces Get 100% FDI

The government has clarified that 100% foreign direct investment (FDI) is allowed in online marketplaces, a move that will ostensibly come as a relief to e-commerce companies such as Flipkart, Amazon India and Snapdeal but the conditions imposed have been hailed as a victory by their brick-and-mortar rivals. Critically , a clause bars marketplaces from offering discounts on their own -these have to come from the vendors on the platforms -and the policy also seeks to end “predatory pricing“ by online companies.
Overseas investment will be automatically permitted subject to certain riders such as the above, the government said in a press note, clearly defining `marketplace'. This ends the uncertainty over the business model being used by India's biggest online retailers which has been challenged in court by brick-and-mortar stores.The FDI policy had previously left the term undefined. The government also appears to have taken a firm stance against deep online discounting to protect neighbourhood stores.
“We want to ensure that there is no predatory pricing by the e-commerce companies which will especially work to the detriment of the small retailers,“ an official said. “The government also feels that if any portal is providing discounts on goods it's holding, then it amounts to inventory-based model, which is in contradiction to the marketplace definition.“ Traditional retailers welcomed the clarification, arguing that this would put an end to what they said was an unfairness inherent in the current system.
“It's a huge step in bringing parity for retailers in the country. It changes everything,“ said Kishore Biyani, CEO of Future Group, the country's largest brick-and-mortar retailer. “They can't operate as a retailer and will just be technology providers. Thats' how they should have been in the first place.“
But the restrictions on discounting as well as the 25% cap on sale from a single vendor may not be welcomed by consumers, who have become accustomed to buying products at cheap rates from online sites. For their part, some e-commerce companies hailed the decision as being positive for them.
The point about marketplaces being unable to offer discounts directly was welcomed wholeheartedly by Biyani, who's often complained about being undercut by e-commerce sites.
To be sure, online discounts have been dwindling as e-commerce companies have been seeking to reduce cash burn and shore up their finances. Valuations could come under pressure ­ a Morgan Stanley mutual fund recently marked down the value of its Flipkart holding.
The Department of Industrial Policy & Promotion (DIPP) said the marketplace-based model of e-commerce involves providing an information technology platform on a digital and electronic network and acting as a facilitator between buyer and seller. It clarified that FDI is not allowed in inventory based marketplaces or companies that sell goods and services directly to consumers.
It also said that e-commerce companies won't be allowed to influence the price of the goods and services directly or indirectly and not more than 25% of sales can come from a single vendor or its group companies.
Nasscom objected to this condition. “We Nasscom objected to this condition. “We believe that restricting sales of a vendor to only 25% of the sales in the marketplace may prove to be restrictive, more so if the vendor sells high value items,“ the lobby group said in a release.
Warranties and after-sales service will be provided by sellers and not the marketplace companies, the guidelines said.
The government wants to promote small and medium enterprises and increase their market share in the online space. In discussions held with DIPP , retailers had aired their concerns over retaining price control.
The final notification was drafted by DIPP after consultation with various stakeholders, including e-commerce companies such as Snapdeal, Amazon, Flipkart besides small and big offline retailers.
Marketplaces can, however, provide support services to sellers such as logistics, warehousing, order fulfillment, call centres, payment collection and other services. They can also engage in transactions with sellers registered on a B2B basis.

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