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Ecommerce FDI Policy May Hit Online Sales By $46 Bn By 2022: Report

Ecommerce FDI Policy May Hit Online Sales By $46 Bn By 2022: Report

PwC conducted a private analysis based on the industry estimates and public information

The drop in sales may occur due to change in business models to comply with the rules

It also reported that the GMV of products sold online may reduce by $800 Mn

Indian ecommerce sector may reportedly suffer a $45.2 Bn (INR 3.2 Lakh Cr) loss in sales by 2022, owing to the new foreign direct investment (FDI) rules in the ecommerce policy, according to an unreleased PricewaterhouseCoopers (PwC) study.

According to a report by Reuters, PwC conducted a private analysis based on the industry estimates and publicly available information. On the basis of this study, it projected that the companies can be severely affected if they change their business models to comply with the new policies. However these PwC estimates are yet to be made public.

This grim forecast comes in line with the ecommerce policy, which is to be implemented from February 1. The draft ecommerce policy which was publicly announced in August by the Ministry of Commerce and Industry, and is aimed at promoting domestic players and Indian made products.

Under this new policy, the online sale of goods produced in India will be promoted through a limited inventory-based B2C model. The new FDI rules direct that online marketplaces will not be allowed to sell affiliates’ products on their platform.

According to the report, the PwC analysis also stated that the gross merchandise value (GMV) of the products sold online could be $800 Mn (INR 5, 683 Cr) lower than industry expectations in the current fiscal year which will end in March.

It also suggested that by March 2022, the policy may reduce the number of jobs created will reduce by 1.1 Mn. It could also lead to a reduction in taxes collected to the tune of $6 Bn (INR 42, 639 Cr). Under the new rules, the ecommerce companies will also not be allowed to mandate an online seller to sell products exclusively on its platform.

These new rules are expected to affect global ecommerce companies such as Amazon India and Walmart-owned Flipkart which are heavily dependent on sellers such as Cloud Retail, Appario and WS Retail to run their online marketplaces and are also backed by international companies.

Recently, reports said that Amazon’s food retail arm Amazon Food is planning to stop selling food products through its website if the government does not change the foreign direct investment (FDI) guidelines by next month.

With only about 15 days left for the new ecommerce rules to come into force, ecommerce players such as Amazon and Flipkart have sought extention to this deadline. According to reports Amazon has sought time till June 1, while Flipkart has requested six months to comply with the ecommerce rule changes.

Commenting on the new policy, the US-India Strategic Partnership Forum (USISPF) had stated that the new regulations are regressive in nature and can also potentially harm the customers.

However, as the ecommerce companies voiced their concerns on the new directive, the Department of Industrial Policy and Promotion (DIPP) said that the changes are just reiteration of the earlier directive to ensure better implementation of the policy. At a time, when the government has been pushing the digital India initiative, this new FDI ruling in ecommerce may put the players in a tough position.

[The development was reported by Reuters]