India is a huge market with a population of over 1.3 billion and an economy of over $2.8 trillion. This combination of money and people makes it one of the most lucrative markets in the world. Companies from far and wide have travelled to this land to earn fortunes in the past and same is happening today also. Indian market went through a transitional phase as the internet grew and the online mode of shopping made its mark in the country. However, what seemed to be a boon for the consumers became a bane for the offline retailers. The online stores removed the need for the intermediaries and could offer products at extremely low prices. There are way more options to choose from and the goods can be received at one’s own house without the need to put a single step outside.
Following the rise of the online market in India, the offline vendors started protesting against the unfair policies that were thrashing the offline marketplaces. This year numerous offline vendors and their associations across the country protested the online sellers. This resulted in major changes in the e-commerce policy in India.
The Indian E-commerce policy is going through a transitional phase. The Indian government is taking steps towards making it a level playing field for the all the players in the marketplace be it global or local. In a crucial decision dated 26th December this year, the Indian government tightened the guidelines for Foreign Direct Investment (FDI) in India. There were numerous minute specifications but let us focus on the major ones that will have a significant impact on the e-commerce industry as a whole.
The changes come in after constant complains from the domestic vendors in India. They claimed that the major players had very deep pockets. Hence, they could afford the deep discounting methods. This had a huge negative impact on the business of the domestic players. Serious cases of discrimination against the smaller domestic players have been noticed in the Indian e-commerce industry. The new E-commerce policy is set to be implemented from 1st February 2019.
One of the rules bans the e-commerce players from selling exclusive-only products on their platform. It has been seen that the major players benefitted from selling something exclusive to their platform. For example, OnePlus made a deal with Amazon for their online sales. In the Indian market, the phones could be purchased exclusively on Amazon’s platform. This took away a huge market from its rivals such as Flipkart and Snapdeal. Following such issues, the Department of Industrial Policy and Promotion curbs the exclusive-only deals. In fact, no company can sell more than 25% of its online selling stock through a single e-commerce player in India. This will not only curb the monopoly of one platform but will also give rise to other platforms. Companies will have to look out for various players to sell its goods online instead of just one.
Most of the developed and developing economies in the world take their Foreign Direct Investments (FDI) seriously in an attempt to safeguard its local enterprises from the foreign giants in the same industry. India too follows the similar policies and it has so far worked for the country mostly in a positive manner. However, it has been noticed that the FDI policies have been dodged on numerous occasions by the e-commerce giants.
Domestic players such as Snapdeal are satisfied with the new e-commerce policy while the top-level leadership of the major global brands are upset with the rules. They are calling the norms to be regressive and not in line with the aim of globalization. However, if the rules of most of the major economies such as the US, China and Europe are to be seen then one can find protective measures being taken all over the world and not just in India. They cover it under the veil of national security or strategic complexity but is actually a shell to protect their domestic businesses.
Another major point compels the e-commerce platforms from using an inventory-based business model and shifts to the marketplace-based model. Inventory based model allows a company to buy specific products from the manufacturer directly and sell at a favourable, time, place and price. This is the reason that the major players can influence the market price for most of the goods that they sell on their platform. However, the marketplace-based model is a toned down version where the e-commerce players need to play the role of a middleman. They have to provide technology and other services such as delivery and return. They are not allowed to keep a huge stock of a product and later sell them at customized prices.
The new policy bars the e-commerce players to sell the products of the companies that they have a stake in. For example, an e-commerce player X has a stake in company A. A is in the shoe business and sells its shoes online. Now, X will not be able to sell shoes from A on its platform. This rule will curb the use of promotional methods to gain profits for a company out of self-interest.
The new policy will completely root out the massive discounts given all year round by the e-commerce players. Cashback and other forms of discounts provided should be fair and non-discriminatory. This has irked most of the Indian consumers and businesspersons. The consumers loved the massive discounts that came by all year round and the e-commerce platforms were happy doing business and increasing turnover year on year.
Another rule that needs to be complied with is the annual audits. The new guidelines clearly mention that the e-commerce players with even a pinch of FDI in them need to submit compliance with the guidelines report regarding FDI. They need to present a compliance report made by a statutory auditor to the RBI confirming the compliance guidelines by September 30th of every year. The rules have been made stricter and that calls for changes.
The group of people who are actually very happy with the decision counts Kishore Biyani in their team and that has a major reason behind it. Kishore Biyani is the founder of India’s largest offline marketplace called the Big Bazar. It is a huge offline retail chain and also has a fashion arm called the FBB or Fashion at Big Bazar. He has never been in favour of FBB’s online rivals as most of the business was taken away from FBB by the newer players in the market such as Jabong, Myntra, Amazon and Flipkart. He was always wary and negating the thought of fashion being sold offline. He created the stores with the needs of the common people in mind where a person wants to go and try out a piece of the dress before purchasing it. This is not possible in the offline version.
Other major offline retail chains in India are RK Damani’s D Mart, Reliance Industries’ Reliance Mart and Aditya Birla Group’s More. These businesses also seem to be quite happy with the decision of the government as there will not be much cut-throat competition in the online stores which was eating into their offline businesses. However, this landed the reliance group in major confusion as they intended to jump into the online business soon. They were making plans to take on Walmart-Flipkart and Amazon in the Indian market.
Chinese e-commerce goliath and the world leader Alibaba is the one who would breathe a sigh of relief after this decision. They were very cautious of the situation in the Indian market and never really intended to barge in through the doors suddenly. They are present in India through their mammoth investments in various tech-based startups in the country but never really opened their own business here. In fact, they are the majority stakeholder in Paytm and helped the company start its e-commerce arm similar to Alibaba’s TMall in India named the PayTM mall. Alibaba’s decision to analyse the Indian market and wait for the right opportunity to enter the market proved to be right.
The new guidelines by the Indian government will see numerous reforms in the existing business models, shareholding patterns and transaction methods. No matter what the companies do, they will be playing on the same level as per the rules are concerned and it will depend upon the quality of service they provide that will determine their future.
– Soumya De