![\"\"](\"https:\/\/www.thirdeyesight.in\/wp-content\/uploads\/2022\/09\/ecommerce-fdi.jpg\")
While\nthe new policy for foreign direct investment (FDI) in the fast-growing\ne-commerce sector has been welcomed by several lobby groups and offline\nretailers, experts note that a few implications of the new guidelines\ncould leave some online players in a fix.The Department of\nIndustrial Policy and Promotion (DIPP), under the Ministry of Commerce\nand Industry, on Tuesday, allowed 100 per cent FDI in online\nretail of goods and services under the marketplace model, but kept the\ninventory-based model of e-commerce out of its purview.
However,\ntwo conditions attached to the approval, in particular, could exert\npressure on some e-tailers, as they will have to restructure their\nbusinesses to comply with the law. The first being that no one company\nor seller on a marketplace can now account for more than 25 per cent of\nthe total sales generated on the site. Second, e-commerce entities\noperating a marketplace model can no longer influence the retail prices\nof goods or services.
“This will ensure that the pseudo\nmarketplace models run by a few e-commerce companies will be forced to\nrationalise their pricing and discounts,” says Craftsvilla.com Founder\n& CEO, Manoj Gupta.
Commenting\non the bar on retail price manipulation, CEO Third Eyesight, Devangshu\nDutta, notes, “Buying market share through discounts is a game for the\ndeep-pocketed, and aggressive discounting is also now explicitly in the\nGovernment’s cross-hairs. While the focus within e-commerce companies\nhad already started shifting to smaller discounts, the new policy will\nforce them to think harder and act quicker.”<\/span>
In\naddition to this, the cap on seller contribution on total sales\ngenerated on an e-commerce marketplace site could also complicate\nmatters for market leaders Flipkart and Amazon, experts point out.<\/span>
Sellers\nlike Cloudtail and WS Retail account for a major chunk of sales on\nAmazon and Flipkart, respectively. While Cloudtail is a joint venture\nbetween Amazon Asia and Infosys founder NR Narayana Murthy’s personal\ninvestment vehicle Catamaran. WS Retail was set up by Flipkart\nco-founders Sachin Bansal and Binny Bansal in 2010.
“Marketplaces\nsuch as Amazon and Flipkart have very large shares of their business\nbeing contributed by inventory sales from their own (‘arm’s-length’)\nentities. These companies will have to rethink their business mix and\nbusiness structures to comply with the law. However, platforms that\npresent a diversified merchant base would certainly have a clear path\nto invest further in India,” Dutta states.<\/span>
Emails sent to\nFlipkart regarding the impact of these implications went unanswered,\nwhile Amazon India told Indiaretailing Bureau it is still studying the\nchanges and would issue a press statement soon.
Even as\ne-tailers scramble to interpret and implement the new rules, investors\nfeel that the latest policy announcement is a breath of fresh air for\ne-commerce firms that have been struggling to attract funding since the\nbeginning of 2016.
“E-commerce players have already raised\nsignificant foreign funding. However, there are still many\nmulti-billion dollar funds yet to be injected. With regulations in\nplace, we can see a fresh infusion of funds in the market,”Managing\nPartner, Unicorn India Ventures Anil Joshi, tells Indiaretailing.
“E-commerce\nentities should now look to build a profitable ecosystem rather than\nrevert back to old, predictable strategies,” Joshi asserts. “Currently,\ne-commerce accounts for a mere 2-3 per cent of modern retail in India\nand has barely scratched the surface. There is a huge market potential\nand demand, especially in tier-II and III towns that are still waiting\nfor these companies to make an entry.”
<\/span><\/p>