Government of India permits 100% FDI in online marketplaces

Near the end of last FY, Department Of Industrial Policy & Promotion (DIPP) has allowed 100% Foreign Direct Investment (FDI) in online marketplaces, it will be applicable on those which do not carry any inventory. This step will have the direct influence on the money raised from foreign entities, by giants like Flipkart, Snapdeal and Amazon India.

It will directly impact the B2B associations which marketplaces have it with special partners as one of the clauses reads out that marketplaces cannot procure more than 25 percent of its goods by value from a single vendor. The gurus have greeted this as a great move, however some voids do still make the guidelines vulnerable. Marketplace companies can float three or four distribution channel firms and continue to work directly with the big manufacturers, in the whole process small enterprises are bound to get suffered.

In the policy effort is taken to define a marketplace, however “influence” in the statement ‘e-commerce marketplaces would not directly or indirectly influence the selling price of products’ needs further clarity. Till the time, stand on preferential treatment given to the channel companies is not resolved, legal wrangles will continue to exist.

With this notification from the central government, overall e-commerce segment will become organized alike for domestic and global online marketplaces. Over last few years, considering the market exist in India, massive funding from foreign investors is injected in the ecosystem. This step will surely bring more opportunities for many start-ups functioning in the same domain.

Nasscom has expressed their excitement on this ruling that this is a clear indication that the government identifies marketplaces as an electronic intermediary, operating a technology platform to facilitate sales and transactions between independent third-party sellers and buyers. Nasscom added that it is extremely glad to see the reiteration of FDI policy 'as is' on the services sector, and also on sale of services through e-commerce.

The step will ensure companies in several ways as opening doors for 100% FDI will allow them to channelize their energy on core business areas and additional access to capital. The clear definition by DIPP for market place and inventory based models of e-commerce will help in structuring the industry as well. the complete situation will continue to give a great time to the consumers - There will be more discounts and better services. The marketplace model has an essential role in the growth ride of e-commerce in India. It has not just made an organised vendor ecosystem but, also made products easily available to consumers across urban and rural India.

Till now, e-commerce sector in India has flourished upon its deep discounting structure and marketplaces because of their deep pockets have often burnt their own pockets in order to acquire more customers with this new notification they will surely be under immense pressure. These marketplaces will have limited say in deciding the price of a product and vendors will have good say on it henceforth.

The next funding round is round the corner; Alibaba is becoming bullish in the segment. Central Government has come up with the solution where interests of the small seller and the job seeker will have a role to play. There is still a huge market which remains un-tapped, the warning sign here is geo-political disturbance and a slackening economic cycle, it can become a challenge for home grown companies to scale up in the future if funding dries up, consolidation can happen and Indian e-ecommerce story becomes the most prized jewel in Amazon and Alibaba crown.