As the Government finally clears the air on the long-awaited definition of e-commerce in India and norms relating to FDI policies, Future Group CEO Kishore Biyani foresees the creation of a level playing field between online and brick-and-mortar retailers, as a result of potentially lower discounting being offered by the former in future.
With a view to attract more foreign investments, the Government on Tuesday permitted 100 per cent FDI under the automatic route for retail trading — or B2C (business-to-consumer) transactions — in the marketplace model of e-commerce. It has also defined what constitutes a marketplace.
“First, the 100 per cent FDI decision won’t make a lot of difference to e-commerce funding; these companies were already getting foreign funding,” Biyani told indiaretailing. “However, the announcement of a clear regulatory framework and definition of e-commerce, inventory-based and marketplace models, will push e-tailers to revise their operations, which will now be regularised in compliance with the new definition,” he added.
“Having been clearly defined, the guidelines may also rule out the need to resort to predatory pricing strategies,” Biyani noted.
At present, 100 per cent FDI is permitted in B2B (business-to-business) transactions under the automatic route.
“100 per cent FDI is permitted under automatic route in marketplace model of e-commerce. FDI is not permitted in inventory-based model of e-commerce,” a press note issued by the Department of Industrial Policy and Promotion (DIPP), under the Ministry of Commerce and Industry, said.
The decisions related to FDI policies in e-commerce and clarity on what constitutes a marketplace has been long awaited by e-commerce firms such as Flipkart, Snapdeal and Amazon India, as well as by brick-and-mortar companies. Several traders’ associations, including Retailers Association of India (RAI), in the past, had sought policy clarification on the working of e-commerce in India and status equivalent to their online rivals.
As per the definition released by the DIPP, the marketplace model of e-commerce has been defined as providing an “information technology 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 the 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.
The press note also points out that an e-commerce entity will not own the inventory that is being sold on the platform. It has also stipulated that an e-commerce entity will not permit more than 25 per cent of the sales through its marketplace from one vendor or its group companies. The e-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field, it added.