Let us find out important provisions of the new policy and intended impact.
What the new rules say?
The new rules allow up to a 100% FDI in an e-commerce entity doing business in India but at the same time put a bar on inventory based-ecommerce. This new rule is formulated for foreign marketplaces who want to set shop in India or who are already doing business in the country. To elaborate it further, a foreign entity can have a controlling stake in an Indian marketplace but cannot have its own inventory for selling products.
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1) Earlier, marketplace like Amazon or Flipkart acted only as platforms for selling products of different companies. But on account of the new rules now they can sell their own products. This means an Indian company or marketplace who has its own inventory can now sell the products through its own e-commerce platform. This will in a way stop a marketplace from monopolising the industry.
2) Earlier, there was no ceiling on a marketplace for buying products from a single vendor to put them on their platform for selling to the consumers. But after the advent of new rules this new mechanism has been introduced. Now an e-commerce entity cannot buy more than 25% inventory from a single vendor. This will help other vendors as well to boost their businesses.
3) Heavy discounts have been a big trend on these e-commerce marketplaces. These entities used to bring in attractive schemes like “a billion dollar sales day” with huge discounts. From now on they cannot do that. New FDI rules have put an end to this practice.
4) E-commerce players cannot sell products from vendors or companies in which hold a stake in. This will further streamline and more transparent India’s e-commerce sector.
5) A few big e-commerce players used to clinch “exclusive” deals with vendors or manufacturers. Under these exclusive tie-ups, only these marketplaces would sell these products, which deprived other entities from selling them thus killing health competitive practices. New rules also aim to abolish this and promote more e-commerce spaces for more entities.
What would be the impact?
The consumers who prefer to buy products on e-commerce sites are surely going to get affected by the new FDI rules. The bar on a company from selling products of vendors it has a stake in will cause a reduction in variety of products. This will lead to consumers ending up with less number of choices.
Another big bane for consumers is the curb on offering of big discounts at these marketplaces. Most of the e-commerce players offer discounts as part of big sales they offer during specific time or occasion. The offer up to 50%, some even more than that, discounts on a number of products.
However, there is some good news as well for consumers who buy online. The e-commerce players sell some products exclusively through their platforms. Soon, this will end. This means now more number of consumers can log on to buy those specific products, thus reducing the chances of buying for old consumers.
