FDI in E Commerce

Electronic commerce (ecommerce) is a type of business model, or segment of a larger business model, that enables a firm or individual to conduct business over an electronic network, typically the internet. Electronic commerce operates in all four of the major market segments: business to business, business to consumer, consumer to consumer and consumer to business. It can be thought of as a more advanced form of mail-order purchasing through a catalog. Almost any product or service can be offered via e-commerce, from books and music to financial services and plane tickets.

From the point of view of business, there are two models of e-commerce. First model is known as

i) Inventory based model of e-commerce- Inventory based model of e-commerce means an ecommerce activity where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly.

ii) Marketplace based model of e-commerce- Marketplace based model of e-commerce means providing of an information technology platform by an e-commerce entity on a digital & electronic network to act as a facilitator between buyer and seller.

E-Commerce Guidelines

Department of Industrial Promotion and Policy (DIPP) has come up with new rules in March 2016 aimed to regulate the e-commerce marketplaces.

Under the new rules 100% FDI under automatic route is permitted in marketplace model of e-commerce and no FDI is permitted in inventory based model of e-commerce. At present, 100 per cent FDI is permitted in B2B (business-to-business) transactions under the automatic route.

 As per the new norms, an e-commerce entity will not be permitted to sell more than 25 per cent of total sales through its marketplace from one vendor or their group companies. New guidelines mandate the e-commerce entities to refrain from indulging in predatory pricing and directly or indirectly influencing the price of goods and services.

The new policy also mandates such e-commerce companies to display contact details of the sellers online. The warranty/guarantee of products or services sold online will also be borne by the sellers, not the e-commerce company.

Review of policy on Foreign Direct Investment (FDI) in e-commerce

26-December-2018

i) 100% FDI under automatic route is permitted in marketplace model of e-commerce.

ii) FDI is not permitted in inventory based model of e-commerce.

iii) E-commerce marketplace may provide support services to sellers in respect of warehousing, logistics, order fulfillment, call centre, payment collection and other services.

iv) E-commerce entity providing a marketplace will not exercise ownership or control over the inventory i.e. goods purported to be sold. Such an ownership or control over the inventory will render the business into inventory based model. Inventory of a vendor will be deemed to be controlled by e-commerce marketplace entity if more than 25% of purchases of such vendor are from the marketplace entity or its group companies.

v) An entity having equity participation by e-commerce marketplace entity or its group companies, or having control on its inventory by e-commerce marketplace entity or its group companies, will not be permitted to sell its products on the platform run by such marketplace entity.

vi) In marketplace model goods/services made available for sale electronically on website should clearly provide name, address and other contact details of the seller. Post sales, delivery of goods to the customers and customer satisfaction will be responsibility of the seller.

vii) In marketplace model, payments for sale may be facilitated by the e-commerce entity in conformity with the guidelines of the Reserve Bank of India.

viii) In marketplace model, any warrantee/ guarantee of goods and services sold will be responsibility of the seller.

ix) E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field. Cash back provided by group companies of marketplace entity to buyers shall be fair and non-discriminatory. For the purposes of this clause, provision of services to any vendor on such terms which are not made available to other vendors in similar circumstances will be deemed unfair and discriminatory.

x) e-commerce marketplace entity will not mandate any seller to sell any product exclusively on its platform only.

xi) e-commerce marketplace entity will be required to furnish a certificate along with a report of statutory auditor to Reserve Bank of India, confirming compliance of above guidelines, by 30^th of September of every year for the preceding financial year.

xii) Digital & electronic network will include network of computers, television channels and any other internet application used in automated manner such as web pages, extranets, mobiles etc.

xii) Marketplace e-commerce entity will be permitted to enter into transactions with sellers registered on its platform on B2B basis.

Advantages of FDI in the sector

(i) Boost to the infrastructural development: Increased capital will help to establish supply chain, distribution system and warehousing.

 (ii) Impetus to manufacturing sector: Growth in retail sector will have cascading effect in the manufacturing sector which will positively contribute to overall growth of economy and job creation.

(iii) More efficient supply chain management: Will reduce the need for middlemen leading to lower transaction costs, reduced overhead and reduced inventory and labour costs.

(iv) Adopting best global business practices: Will lead to better work culture and customer service.

(v) Increased outreach: Will provide increased access to buyers/sellers, allow MSMEs and artisans to reach out to customers far beyond their immediate location, both locally within India and abroad.

(vi) Traceability and transparency & Improved customer service.

(vii) Reduced costs: On marketing and distribution, travel, materials and supplies will benefit businesses.

Disadvantages of FDI in the sector

(i) Small time businesses/kirana stores remain the largest source of employment in the country. Opening of B2C e-commerce on inventory based model is likely to seriously impact these shopkeepers leading to large scale unemployment.

(ii) Indian market is not yet ready for opening up e-retail space to foreign investors. It will seriously impair small time trading of brick and mortar stores. Small time shopkeepers are not highly qualified and will not be able to compete with sound e-retail business format.

(iii) Because of scale of economic operations, e-commerce players in the inventory based model will have more bargaining power than standalone traders and will resort to predatory pricing.

(vi) Inventory based e-commerce competes directly with MSMEs. Indian e-commerce B2C is growing in an eco-system with Indian owned/led companies offering open marketplace models which provide a technology platform to help MSME reach across India and even globally.

These marketplaces do not compete with MSME or retailers and allow everyone to trade. On the other hand, allowing the entry of inventory based large foreign e-tailers may shrink Indian entrepreneurship and the MSME sector.

Conclusion

Overall, e-commerce including online retail in India constitutes a small fraction of total sales, but is set to grow to a substantial amount owing to a lot of factors such as rising disposable incomes, rapid urbanization, increasing adoption and penetration of technology such as the internet and mobiles, rising youth population as well as increasing cost of running offline stores across the country.

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The entire contents of above document have been prepared on the basis of Notification then exist.  Whereas deep care has been taken by author to ensure the correctness and completeness of the information provided.This is nothing but a knowledge sharing initiative by author and author do not intend to accost any business or profession.