Implications of the New Guideline of FDI Policy for 100% Automatic Route in E-Commerce Marketplace

14-Jul-2016 04:08 am 0

The Department of Industrial Policy and Promotion (DIPP) has laid down new guidelines for Foreign Direct Investment (FDI) in E-commerce sector on March 29, 2016. The new guidelines permit FDI up to 100% in Business to Business (B2B) E-commerce under an automatic route. These new norms can have a considerable impact on online shopping and make it considerably costlier in the time to come.

Here is how the new FDI guidelines will impact the marketplace:

What do the new guidelines say?

  • There is no change in the FDI limit as 100% FDI was already permitted in this sector.
  • The scope of market-place has been elaborated and includes services such as call centres, logistics, warehouse etc.
  • It is mandatory for the e-commerce to display contact details of the sellers on their online portals
  • FDI is not allowed in the inventory based model of E-commerce where the goods are owned by E-commerce entirely and sold to the consumers by it directly.
  • The selling prices of the commodities will have a set limit that they will have to maintain now.
  • The heavy discounts might be the thing of past as the new guidelines prohibit these marketplaces from offering discounts more than 25% of the sales.

The Way Forward – Implications & Key Takeaways

  • While big E-commerce giants such as Amazon, Flipkart etc. have always sold their goods way below at MRP and emerged as winners, they won’t be able to continue that anymore. Restrictions on sale price will result in lesser discounts.
  • The era of huge discounts on Internet is likely to be over. It will directly impact the consumers and they will end up on the losing end.
  • The policy benefits the offline stores in a huge way. It is almost like a boon for them. There has been quite a slump in the last years for offline retailers due to the emerging discounts trends offered by e-commerce. The new policy ensures that both are leveled up in terms of selling prices. This is most likely going to revive the businesses of the physical stores as the prices of online commodities will be comparable to that of offline stores.
  • The new guidelines break the ambiguity in this sector by bringing clarity on FDI policy that was long awaited.
  • The 25% sales cap will really make the vendors struggle for a right marketplace. This will require them to re-align their business practices to comply with the conditions.
  • This will directly restrict the e-commerce giants to maximize sales by wooing the customers with discounts but at the same time, this will lead to treat sellers equally in the e-commerce entity. It will give a respite to many e-commerce who have to go lengths to offer heavy discounts in order to stay at par against tough competition within the e-commerce market.
  • The majority of e-commerce companies will have to redo their business model and structure it in order to raise funding as per their current valuation.
Summary
Article Name
Implications of the New Guideline of FDI Policy for 100% Automatic Route in E-Commerce Marketplace
Description
The Department of Industrial Policy and Promotion (DIPP) has laid down new guidelines for Foreign Direct Investment (FDI) in E-commerce sector on March 29, 2016. The new guidelines permit FDI up to 100% in Business to Business (B2B) E-commerce under an automatic route.
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