FDI norms in e-marketplace: Big guns quiet as offline retailers hail move
While the poster boys of the industry continue to maintain silence on the new guidelines for e-commerce marketplaces, others hailed the move to ensure a level playing field. On Twitter, Snapdeal co-founder Kunal Bahl gave an obligatory thumbs up to the new norms without talking about the likely fallout on his company. Meanwhile, offline retailers were happy about the ban on discounts by online platforms.
Here's what startups, offline retailers, industry analysts and investors had to say about the new norms:
When one vendor accounts for 80 per cent of the business, there is no parity in the marketplace. Flipkart and Amazon are hybrid marketplaces, with WS Retail and Cloudtail as vendors. You cannot pretend to be a marketplace and actually be an inventory-led business. This guideline will bring parity in the market. Even for the 25 per cent ceiling on sourcing from a single vendor, I wish it was zero.
Manu Agarwal, CEO & Founder, Naaptol
The announcement is a welcome move and brings about clarity in operational guidelines that enables the marketplace operator to provide value-added services that can exponentially improve warehousing capability, logistic efficiency and market outreach.
I expect a few more global e-commerce players to now finalise their India-entry plans. There were a lot of concerns on FDI which have now been addressed. However, certain conditions regarding limit on single vendor sales could impact certain existing marketplace models.
The government is insisting that e-tailers act as a platform and facilitate their listed vendors to sell, instead of underwriting minimum sales prices and offering discounts, thereby influencing prices. It means e-tailers have an alternative mechanism to market to consumers and drive traffic or they work with vendors to have them absorb discounts to the extent practical. Both are going to be difficult to implement. This could even be a boon in disguise as e-tailers might push only such discounts that are absorbed by their vendor partners. Let's wait and watch.
If the spirit of the policy is adopted by everybody, then definitely it's a level playing field. In the past, we have seen that rather than becoming service providers they have become retailers and have worked around the ambiguities of the policy. To overcome the law, people had created subsidiaries, joint ventures or related parties and were operating under that pretext and participating in the pricing of the product by huge discounting. Now the policy is explicit about the fact that discounting is not permitted.
Not allowing marketplaces to control prices is good as it ensures that those with foreign funding do not offer deep discounts to get customers, which is unfair. Moreover, it has clarified that the tax obligation is on the vendors. At the end of the day, we are an intermediary and a tech company, and taxing us didn't make sense.
While B2B always had 100 per cent FDI, there were many enterprises which had a mix of B2C and B2B. Now there is clarity in the overall business processes. But the move may not be in the best interests of the Indian economy. The nascent SME sector may fall prey to the predatory pricing. Also, the 25 per cent limit for a single player is too high and may not be in the best interest of the sector.
Startups will have to restructure their models such that more funding can be raised. FDI is not permitted in inventory-based model, hence, higher rounds of funding would not be possible in such companies.
Allowing marketplace e-commerce companies to provide support services to sellers will provide greater thrust to the investment and growth climate of such companies. Most importantly, marketplace companies will not be able to give any warranty on the products sold. The e-commerce companies that are doing so, will have to change their model of operation.