100% FDI in e-commerce market: Boon or Bane?

As per the FDI policy, contained in the ‘Consolidated FDI Policy Circular 2016’, amended from time to time, the decision has been taken to permit 100% Foreign Direct Investment in B2B (Business to Business) e-commerce through automatic route. The Governmental notification for permitting 100% FDI in the market based model of e-commerce has caught many eyes. The decision has, in all likelihood, been taken to accelerate the pace of government initiatives such as Make in India as well as Digital India.

As per the guidelines issued by the Department of Industrial Policy and Promotion (DIPP), the 100% FDI is open to the Marketplace model of e-commerce, but not Inventory based model of e-commerce. Therefore, firstly, it is imperative to know the E-commerce Marketplace model, and afterwards understand the implications of this policy. The Marketplace model of e-commerce means providing an information technology platform by an e-commerce entity on a digital and electronic network to act as a facilitator between the buyer and seller according to the DIPP of the Ministry of Commerce and Industry. Thus, a marketplace entity will be able to do transactions with the seller registered on its platform on B2B basis, said DIPP. But, how far this decision is likely to benefit the consumers and protect the interest of domestic players?

Union Minister of Commerce and Industry, Smt. Nirmala Sitharaman had been a vociferous propagator of allowing 100% FDI in the e-commerce sector. Although, the decision has been commended on many junctures, but it is equally important to critically analyse its pros and cons, and how will it affect the Indian economy?  The policy has been seen as a big setback for giant pillars of the online retail industry like Flipkart and Amazon. The new policy has propounded to outlaw heavy discounts like Big Billion Days that fuelled big consumer demand. The policy is focussed towards reducing predatory pricing, as the ecommerce industry is not permitted to, directly or indirectly, influence the sale price of goods and services and shall maintain a level playing field. Another blow to the current players is the decision to restrict the permission up to 25% of the sales through marketplace model from one vendor or their group companies. This has hugely affected the current monopoly, and will most likely act as a booster to encourage more vendors to sell their goods through the e-commerce entity. But, the policy is nothing new in the sector. The 100% FDI Business services through the automatic route was already available, but the Government has introduced marketplace model as an e-commerce. The cutting down of discount schemes is in all likelihood affecting the consumers directly. The consumers were the biggest beneficiaries of these discounts. And, such cuts would pose an extra burden upon the consumers.

Hence, any policy decision contains both the positive and negative implication, but the new guidelines regarding the e-commerce sector has to some extent managed to mark an upper hand. The decision is a move to attract investors and to make the country an ideal destination for foreign investment and this would directly result in the betterment of the economy. But, the policy is required to be scrutinised effectively because it shows repetition of the earlier guidelines and to some extent, arbitrary towards the interest of consumers.

Source of content:- http://www.letscomply.com/knowledge-hub/2016/04/100-fdi-e-commerce-market-boon-bane/