The foreign direct investment (FDI) policy was amended on December 26 last year by a press note issued by the government in relation to regulations applicable to companies engaged in e-commerce. The current policy clearly lays out that while 100% FDI is permitted in the marketplace model of e-commerce, no FDI is permitted in the inventory-based model. It had also been clarified by the policy that the inventory-based model means an activity whereby inventory of goods and services is owned by an e-commerce entity and is sold on business to consumer (B2C) basis to the consumers directly.
With these new regulations, major e-commerce companies following the marketplace model and having preferred vendors are likely to revisit their operational strategies to make sure they comply, if needed, with the government's recent norm revisions.
The revised norms, which will come into effect from today, may also impact the consumer buying behaviour and preferences. Various consumers shop online owing to deep discounts and exclusive product offerings. It is very likely that e-commerce companies will not disturb the level of discounts that they offer to consumers as this could be detrimental.
This is likely to make e-commerce companies re-strategise to have sustainable performance in India as removal of exclusivity from suppliers is expected to open up the arena for competition, and at the same time there would be stress not to reduce the discounts already offered by them. Thus, if a supplier is offering an 'exclusive' discount or a 'cashback' on an e-commerce platform, the exclusivity will have to be done away with but there may be a resistance to alter the discount.
Another aspect where the revised norms could have an impact is the private label offerings by e-commerce marketplace entities. E-commerce players had been offering private label/ in-house brands and products having higher margins to increase their bottomline.
Overall, the fundamentals of the India retail story appear to remain unchanged. The Indian market is so large and wide that there is no dearth of business and growth. Hopefully, this will provide sufficient incentive for the e-commerce companies to stay attracted to India.
The writer is a partner at Deloitte India