Big Picture, GS-3, Indian Economy, Uncategorized

FDI in E-Commerce – whom will it Benefit?

Recently government passed an order allowing 100 percent FDI in market place model of e commerce sector with some regulations and restrictions. The industry which has been growing at a phenomenal phase (1 billion $ to 14 Billion $) since few years, the 100% percent FDI in e commerce industry is welcomed with both prudence and Joy. This article deals with certain issues relating to E-commerce industry.

Definition of e – commerce:

Buying and selling of goods and services including digital products over digital and electronic network.

Features of new FDI ruling:

  • 100% FDI allowed in market place model of e-commerce.
  • Market place model and inventory based model of e-commerce well defined.
  • Level playing field to all sellers in market place model.
  • Sales through one vendor not to exceed 25% in market place model.

As it turns out, the FDI ruling does not only come as a rude awakening to sellers but buyers as well. According to the guidelines, no seller has the right to revise the price of a product which ensures fair competition. This ruling could mean the end of special sale days like Flipkart’s Big Billion Day or special offers provided by the likes of Amazon, Snapdeal etc. In addition, sellers could be forced to sell products on their platform at prices much higher than what the Indian online shopper is used to. This is could bring brick-and-mortar stores back into the limelight.

Following are some of the concerns:

  • 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.
  • 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.
  • The infrastructure created by major e-commerce players will be captive and government will not be able to achieve its objective of creating back end infrastructure.
  • Indian e-commerce market is at a nascent stage of development. With FDI in e-commerce, global players will have adverse impact on this domestic industry. It will lead to monopolies in ecommerce, manufacturing, logistics and retail sector.
  • 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.

 

However there are some advantages too:

  • Boost to the infrastructural development: 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.
  • More efficient supply chain management: Will reduce the need for middlemen leading to lower transaction costs, reduced overhead and reduced inventory and labour costs.
  • Adopting best global business practices: Will lead to better work culture and customer service.
  • 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.
  • Traceability and transparency: Will not only empower consumers with information and data but also help in better compliance of regulatory framework.
  • Reduced costs: On marketing and distribution, travel, materials and supplies will benefit businesses.
  • Improved customer service: providing more responsive order taking and after-sales service to customers and competitive pricing.

With new regulation in place ultimately government is legitimising the sector which before was neither regulated nor well defined. With new regulation in place there is a clarity which can help to assist growth by considering all the stake holders involved in the sector. However there are various concerns listed above that needs to be addressed through holistic approach.

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