New e- Commerce Norms

• Recently government has clarified its policy on Foreign Direct Investment (FDI) in e-commerce and online retail consumer businesses that operate as marketplaces.
• New guidelines are permitting 100% FDI in the "marketplace" model and disallowing foreign investment in the "inventory" model which will give ecommerce firms like China's Baidu and Tencent and Japanese internet giants like Rakuten and Recruit Holdings clarity on investing in Indian ecommerce by removing much of the policy-related ambiguity that existed until now

Analysis:

• These rules could complicate matters for market leader Flipkart and US-based Amazon, as no single vendor can account for more than 25% of the sales on an online marketplace. Although the companies say they comply with existing rules and own no inventory, they have merchants (WS Retail for Flipkart, Cloudtail for Amazon) that account for a substantial chunk of their sales. And also this rule is an artificial distinction driven by a flawed notion — of bringing about parity between rules governing physical retail and e-retail. Instead of simplifying the complex labyrinth governing physical retail, the government has chosen to further complicate e-retail.
• Under this rule e-retailers will not directly or indirectly influence the sale price of goods and services and maintain a level playing field. But this is not under the spirit of free market and there are also some practical difficulties in enforcing this. But this rule is welcome by Offline players because they had suffered a lot because of high disocunts offered by the e-retailers.
• Customers are not very enthusiastic about these new norms because ,Discounts have been restricted and it can only be allowed by the sellers. Post sales, delivery of goods to the customer and customer satisfaction will be the responsibility of the seller. For example:-If a customer is buying from Amazon and he is not satisfied, then the seller would be responsible for that. And it would be very inconvenient for the customer to get its grievances redressed through the sellers. If the marketplace(Amazon) can provide logistics support, then they should be accountable for the quality of the final product they deliver.
• The government should dissolve the distinction between physical- and e-retail. It should simplify norms that allow businesses to flourish, creating jobs as well as providing a richer array of goods and services to consumers at the lowest price. The e-commerce market has seen exponential growth and is expected to touch $69 billion by 2020. It is an industry that has the potential to create jobs and spur economic growth.

By: Vishal