The decision to allow 100 per cent FDI in e-commerce entities running online marketplaces is a belated yet welcome step by the government. It clears the air a great deal on the norms governing a rapidly expanding part of the economy, and makes de jure what has hitherto been de facto. Billions of dollars have already been committed as investment in the sector, and online shopping is now an established retail habit. The growth potential of the segment has drawn in venture capital and private equity investors in droves, and e-commerce players had exploited the policy ambiguities and loopholes to obtain attractive valuations for their enterprises. The latest guidelines make it clear that as long as a business entity acts purely as a marketplace, facilitating online transactions between a seller and a buyer, 100 per cent overseas ownership is allowed in the venture. Safeguards have also been specified from the marketplace operator’s perspective, so that the responsibility for both delivery and quality of the product and related warranties will lie with the seller. E-commerce firms can provide support services to sellers, including warehousing, logistics, call centres and payment collection. The rub for them lies in some of the other conditions pertaining to what the foreign-owned e-commerce marketplaces cannot do hereafter.
The imposition of a 25 per cent cap on the value that sales from a single seller and group companies can contribute to overall turnover at the marketplace means some of the largest e-commerce players will have to redraw their business strategies. The unequivocal assertion that any ownership of inventory by the entity running the marketplace will render its business into the inventory-based model, where FDI is barred, also makes it clear that these foreign-owned e-commerce enterprises can no longer sell wares sporting their own brand names online. And the most worrisome norm is the vaguely worded one prohibiting ventures from “directly or indirectly” influencing the sale price of goods. This is construed by most observers as a deterrent for discounts. If the idea is to level the playing field, would e-sellers be allowed to slash prices only if their offline counterparts are offering discounts? Would pricing decisions be dictated by a government nod instead of market forces? Brick-and-mortar retailers, some of whom had moved court seeking an end to the deep-pockets-backed discounts offered by e-tailers that they claimed were ruining their businesses, might be pleased. But for the consumer, strict enforcement of the guidelines could make it difficult to access value-for-money deals. E-commerce, including m-commerce spurred by India’s smartphone surge, have been a significant disruptor in the way domestic consumers shop. If consumers lose interest, the Centre’s guidelines could well disrupt this disruption and end up staunching the very flow of foreign capital it aims to attract.
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