Government Recognises B2C Online Marketplaces, But It Is Status Quo For Indian Ecommerce

Finally, the Indian government seems to have realised, late in the day, that there are online marketplaces up and running inside its economy. The Indian ecommerce market is pegged to be at $25 Bn and finally there is some clarity from the government’s side on at least the definitions of what constitutes a “marketplace” or what is meant by “inventory” model of doing business online.  

Today’s declaration by Department of Industrial Policy and Promotion (DIPP) sharing the guidelines on FDI in ecommerce i.e. permitting 100% foreign direct investment in Business to Customers (B2C) in marketplace model ecommerce. (read here)

“100% FDI is permitted under automatic route in marketplace model of ecommerce. FDI is not permitted in inventory-based model of ecommerce,” states Department of Industrial Policy and Promotion (DIPP) in a press note.

This move will demystify the cloudy ecosystem for sure, but this will not have any immediate impact on the Indian startup scenario as foreign players like Amazon and eBay have been operating their marketplaces in India, already.

But as always, everyone seemed to be gung-ho about an announcement which doesn’t impact life in any manner.

Welcoming the move Kunal Bahl, cofounder of Snapdeal, tweeted:

Great to see the guidelines around 100% FDI in ecomm marketplaces. Glad the govt recognises and supports an industry transforming India! ??

— Kunal Bahl (@1kunalbahl) March 29, 2016

The Guidelines

As per the new guidelines, FDI in B2C commerce is permitted under the following conditions:

• A manufacturer is permitted to sell its products manufactured in India, through ecommerce retail
• A single brand retail trading entity operating through brick and mortar stores, is permitted to undertake retail trading through ecommerce
• An Indian manufacturer is permitted to sell its own single brand products through ecommerce

DIPP has also defined ‘ecommerce’, ‘inventory-based model’ and ‘marketplace model’ to leave no room for ambiguity. According to the new policy: 

Ecommerce – Buying and selling of goods and services including digital products over digital and electronic networks.

Inventory-based model – when the inventory of goods and services being sold are owned by the company and directly sold to the consumer.

Marketplace model –  when an ecommerce entity merely provides an IT platform to act as a facilitator between the buyer and seller.

Rajnish Wahi, spokesperson of  Snapdeal said, that it  “welcomes the government’s move to provide clarity to India’s fast growing ecommerce industry through the guidelines issued today.  These guidelines recognise the transformative role that ecommerce marketplaces will play in the Indian market.”

Key Things To Consider

The new guidelines pose two major points in the real-world scenario

• Ecommerce entities need to ensure that they do not permit more than 25% of their total sales from one vendor or a particular group of companies. This 25% cap on the most preferred seller seems like a hurdle though.
• Ecommerce entity offering the marketplace will not ‘directly or indirectly influence the sale price of goods or services’. This will definitely pose as a challenge for the discounting gimmicks adopted by the ecommerce players to lure more customers.

More reactions poured in…

Sanjay Sethi, CEO & co-founder, ShopClues “100 % FDI in e-commerce is a great initiative for the marketplace format of e-commerce retailing as it will help attract foreign investments in the country. It will be beneficial for consumers and will help in supporting the vision of Make in India as well and also create more job opportunities in the country. The clarity of the definition of e-commerce and marketplace model categorically will allow many players (national and international) to enter the industry through marketplace route. ”

Anish Basu Roy, co-founder, Shotang, a B2B cloud marketplace, “I think it’s a step in the right direction. FDI Investments in the ecommerce marketplace model stand to eventually benefit thousands of small businesses and suppliers through better market access and world-class technology. At Shotang, we firmly believe in leveraging on the power of the marketplace model.”

Vivek Gupta, Partner at BMR Advisors said, it is good that some clarity has been provided. However, the fact that this position has been stated after close to 10 Bn dollars have been committed to the sector, networks and businesses worth multiples of that in different business structures already exist on the ground and legal challenges and ED enquiries are in various stages, meant that the government had very little elbow room to really state a policy position.”

But, it is good to see that young and talented entrepreneurs from India and their billion dollar businesses are forcing the government to come up with rules and guidelines for an ever-changing digital environment. It seems that the founders of small and medium businesses in India, with a lot of help from technological innovations, are telling the administration– “Catch me if you can.”