ECommerce Shaken Due To New FDI Policy: 3 Reasons Why Offline Businesses Should Rejoice

The new FDI Policies can stop India ecommerce from growing and expanding.

By Mohul Ghosh On Dec 27, 2018

ECommerce in India shaken due to FDI policy

Commerce Ministry has issued new guidelines for FDI or Foreign Direct Investment in the ecommerce sector. And the rules are pretty anti-Ecommerce, to say the least.

Activists and propagators of ecommerce in India have slammed the new policies, which restricts and regulates the booming industry.

The proposals and suggestions for ecommerce policy was shared in the month of July this year, which has been now confirmed.

An unnamed analyst said that it seems someone studied the business models of Amazon and Flipkart, and then decided to create a policy which effectively kills them.

On a broader observation, it is clear that the new FDI policy has been created with an aim to benefit and help the offline businesses/traders, who have been protesting against companies like Amazon, Walmart for snatching away their businesses.

Now, with the new FDI policy in place for ecommerce, these offline traders and businesses should rejoice.

3 Reasons Why:

#1: Walmart Cannot Sell On Flipkart; Cloudtail Cannot Sell On Amazon

Ecommerce marketplaces with foreign funding can no longer sell their own products on their own website. This means that Cloudtail, which is a 49:51 joint venture between Amazon Asia and NR Narayana Murthy’s Catamaran Ventures, and the largest seller on Amazon, cannot sell on Amazon. This can be a major blow to them.

Walmart, the owner of Flipkart cannot sell their own products on Flipkart, due to the same rule. This can be a major issue for them, and their $16 billion deal to acquire Flipkart can be now jeopardized.

This is actually hard to believe, but Indian Govt. doesn’t want these marketplaces to ‘exploit’ their own platforms. In short, Govt. wants to regulate how an ecommerce marketplace conducts its own business.

No doubt the ecommerce sector is shaken and stirred now.

And the direct beneficiary of this decision will be offline businesses and traders, as they can now have a better chance to compete against the ecommerce biggies.

#2: Online Vendors Restricted & Limited

A single vendor on a platform cannot sell more than 25% of the overall value of transactions, of a marketplace. In case that single vendor is selling more than 25%, then that will be considered as maintaining an inventory, which is against the FDI laws of B2C consumer market.

This will again benefit the offline businesses, as no vendor can become too big on an e-commerce platform, including that ecommerce itself.

This is again hit Cloudtail hard, as they are the biggest seller on Amazon, and from now on, they cannot sell more than 25%. Flipkart won’t be hit, as their biggest seller: WS Retail had already stopped selling on Flipkart.

#3: Exclusive Online Deals, Deep discount, Cashbacks Can Stop Now

Related to this aspect, the new FDI Guidelines states: “For the purposes of this clause, provision of services to any vendor on such terms which are not made available to other vendors in similar circumstances will be deemed unfair and discriminatory,”

Now, this can be interpreted in several ways, and thus, currently not clear and specific.

But based on current information, it seems that this clause has been added so that exclusive deals of Amazon/Flipkart with few manufacturers and brands can stop. Flipkart sold 30 lakh smartphones after they signed an exclusive deal with Oppo. This can stop.

‘Favouring’ few vendors also mean discounts and cashbacks for some product, and even this can stop.

Again, it is the offline vendors and businesses which will get the benefit, when cashbacks and exclusive deals are stopped.

The new policy comes into force effective February 2nd, and all ecommerce firms need to send a compliance acceptance certificate by September 30th, every year.

We will keep you updated, as more details come in.