Commerce Minister Suresh Prabhu had released the draft e-commerce policy last week, here is an analysis of what to expect ahead !
What does the policy want ?
- The Draft wants a regulator for e-commerce to be established.
- 49% FDI to be allowed in the inventory based model.
- In fact, the policy also recommends the storage of data in India, as was also proposed in the Personal Data Protection Bill 2018, and discussed in deep in our previous article.
- In addition, it also proposes certain restrictions on the amount of goods which can be purchased and the amount of discounts offered. This can affect the business model of a company like Amazon, which heavily relies upon such discounts, acquires customers and forces other local players out of competition(such as Snapdeal).
What is the difference between Industry and Marketplace Model for e-commerce ?
Under the Industry model, the website sells the products directly to the customers, without involving any sellers in between, thereby ensuring greater control and customer satisfaction.This is usually for small business or those selling personalised products, such as handicrafts, furniture, etc.
In the Marketplace Model, the e-commerce website sells through various sellers which are listed there, basically providing them a platform. For example, say Mr. Ronald, a seller of cosmetic products wants to sell his products online, say through Amazon, then the cosmetic product which he wants to sell would be listed on Amazon and sold by Mr. Ronald. There could also be many more sellers like Mr. Ronald for the same product. This ensure free and fair competition for anyone who wishes to sell online.
This may help an ecommerce firm when it wishes to expand and diversify further.
But earlier, both Flipkart and Amazon have violated a rule wherein 25% of the revenue of their business cannot come from more than one seller(like WS Retail, Cloudtail).
The e-commerce market had initially followed the inventory based model but are now working on a hybrid model.
The Indian E-Commerce Industry is already dominated by US based companies(Walmart, Amazon), Japan’s Softbank Group and Alibaba’s investment in Paytm Mall conspicuously controls the major Indian E-Commerce Industry, shunning out the smaller players.
The Sunset Clause
It is a law which remains in force for a specific period of time and ceases to exist post a predetermined date. Under this draft, through a sunset clause, the government would restrict the duration of the deep discount sales which are offered from time to time by the firms.
The Govt has allowed limited inventory in the B2C(Business to Consumer) model, wherein the products should be 100% Made in India and should be sold through an Indian owned retail company. This would further incentivise the small businesses to launch their businesses in India, online with ease. For example, the Launchpad is a good initiative by Amazon which provides a platform for startups to sell their products.
The Way Ahead
The Ecommerce sales in India are likely to rise from about $38 Billion to over $200 Billion by 2026.
As been analysed by various Industry professionals, it is quite evident that the policy has come into implementation a few years late. But, it is a good initiative by the government to finally propose this bill, which is aimed at protecting the small Indian Businesses.
But, the above FDI measure of allowing 49% in the inventory based model may likely allow more foreign influence in the Indian E-Commerce sector and which can lead to the shutdown of smaller players, as was what happened in the case of the Telecom Sector, when Reliance Jio Infocomm took the market by storm and forced players such as RCom, Aircel, Docomo out of business.
It has been speculated that the policy will come into place post the Lok Sabha elections next year, as there are various recommendations and it will take time to implement the policy completely.
The Draft has already received mixed reactions and it still remains uncertain to what extent it could protect the small businesses. Only time will tell how well it is received in the parliament and can bring a lot of change in the way in which the E-Commerce business is conducted.