The New E-commerce Regulation in India – Be a participant or an organizer, not both
Starting from February 1, 2019, Amazon India and Flipkart by Walmart, among others, are not allowed to hold inventory and sell to customers.
The rules now bar any entity in which an e-commerce firm or its group companies have a stake from selling on their online platform. This is a problem for Amazon, which had been picking up stakes in offline Indian retailers to boost its market share. (Reuters)
The Regulation In Four Dimensions
eCommerce in India can be broadly categorized as:
- domestic and cross-border
- B2B and B2C
- marketplace and inventory based
- single brand and multi brand
B2B: 100 percent FDI is allowed in companies engaged in B2B eCommerce, e.g. Walmart and Alibaba can operate a cash & carry (B2B) business.
B2C Marketplace: 100 percent FDI is allowed in the online retail of multi-brand goods and services B2C under the marketplace model, e.g. Amazon, Flipkart, Snapdeal. Any eCommerce entity providing a marketplace cannot exercise ownership over the inventory and is not permitted to sell more than 25 percent of total sales through its marketplace from one vendor to their group companies. There are also conditions restricting to offer discounts by marketplace.
B2C Inventory-Based: FDI is not allowed in inventory-based model of eCommerce.
Single Brand: A single brand retail trading entity operating through brick and mortar stores is permitted to undertake retail trading through eCommerce subject to local sourcing requirements. Food retail: 100 percent FDI is allowed for trading (including eCommerce) of food products manufactured or procured in India.
Multi-Brand Retail: No FDI is allowed in companies which engage in multi-brand retail trading by means of eCommerce.
Source: https://www.export.gov/article?id=India-e-Commerce
Other Conditions
- E-commerce marketplace may provide support services to sellers in respect of warehousing, logistics, order fulfillment, call centre, payment collection and other services.
- An e-commerce entity will not permit more than 25% of the sales value on financial year basis affected through its marketplace from one vendor or their group companies.
- In marketplace model, any warrantee/ guarantee of goods and services sold will be responsibility of the seller.
- E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field.
- The government has also prohibited e-commerce firms from pushing merchants to sell any product exclusively on its platform. The sellers can, however, choose to have a preferred online partner.
Source: https://dipp.gov.in/sites/default/files/CFPC_2017_FINAL_RELEASED_28.8.17.pdf
Some Context
Indian marketplace is dominated with many small shops and business. If foreign investment in multi-brand retail is to be permitted, then the business of these small shop owners will be in danger. Consumers will be spoilt with choices and due to high competitions, prices will go down, thus these multi-brand retail establishment will be able attract consumers at a large scale. However, in case of single-brand retail shops, they usually bring premium or luxury goods in the market so as such they are not in direct conflict with Indian small business. (blog.ipleaders.in)