On December 28, 2018, the Department of Industrial Policy and Promotion (DIPP) under the Ministry of Commerce, Government of India passed a new set of policies and introduced significant changes to its earlier policy (of 2017) which governed Foreign Direct Investments (FDI) in the e-commerce sector. The Indian retail landscape is economically and politically a sensitive one with stringent laws on foreign investment. E-commerce has been the only sector exclusive of the rule. But with the new regulations in place, it is largely going to change the dynamics of the Indian e-commerce industry.
Highlights of the policy:
- Marketplace Entity (like Amazon) will have no ownership or control over the store inventory (of sellers).
- The marketplace with run on an inventory-based model.
- Marketplace Entity or its group companies cannot buy more than 25% from a single vendor.
- Marketplace Entity cannot influence the price of goods and there will be a standard pricing model for all vendors.
- Marketplace Entity will offer logistics and operational services to all vendors non-discriminately.
- Marketplace Entity will offer cashback to all buyers without any discrimination.
- Marketplace Entity cannot mandate the exclusivity of products to any vendor.
While the above policies remain strong for marketplaces, this could be a blessing in disguise for retail owners.
Let’s look at some of the benefits retails are most likely to gain out of this new policy:
- With the inventory-based e-commerce, retailers will now have more control over their products and yet reap the benefits of a managed marketplace.
- Since marketplaces cannot run their own discounts, retailers can set a pricing model as per their sales strategy as well as take control of offers and discounts.
- Now that vendors will not be tied up by the exclusivity clause with the marketplace, they can spread their products across different platforms.
- Most importantly, marketplaces will now be mandatorily required to submit a compliance document that abides by the policy guidelines on September 30 of every year. This will make the e-commerce landscape more transparent not only for vendors but also for end customers.
Overall, the current scenario creates opportunities for vendors rather than hindering their e-commerce business practice.