Implications and Effects: How the new FDI rules will impact e-commerce in India

Rishabh Mehra, MD & CEO, Digital Mall Of Asia The recent changes in the FDI policyhave ushered in a major change in how e-commerce operates in India. The move is expected to have a major impact on online sales; as per estimates, it could lead to an erosion of sales worth INR 35,000 - 40,000 crore in the online retail space,

So why are offline retailers across India celebrating the announcement? Largely because the latest policy change has created a level playing field by prohibiting e-commerce giants such as Amazon and Flipkart to offer deep discounts through their partnered/preferred retailers. This opens up a potential business opportunity worth INR 10,000-12,000 crore for physical retailers in the online space by FY20.

But that is not the only impact that this policy
change will usher in the Indian e-commerce space.

Impact on e-commerce players
From now on, no online entity will be allowed to offer products in which they hold a direct or indirect equity interest. Sellers can’t even make bulk purchases when it comes to buying wholesale. Also, e-commerce firms are now prohibited to push merchants to sell products exclusively on their platform.

The move will thus uplift local retailers who were facing losses in the wake of deep discounts offered by online players, enabling them to compete on a more equal footing with online retailers backed by corporate giants. Moreover, companies with equity stakes on the e-commerce marketplace are now liable to treat all of their sellers in a fair manner in terms of providing support for services such as logistics, fulfilment, and payments on the platform.

Opportunity for other digital players
The policy has opened a new route for brick-and-mortarretailers to expand into the digital domainand complement their offline operations through newer digital business models.
Take, for instance, the recent shift towards recreating physical shopping mall in the digital medium by merging real estate and digital spaces through cutting-edge technological tools.

Working on a zero-commission model, such state-of-the-art digital shopping malls allow retailers to enjoy exclusivity benefits within their region. This eliminates the possibility of preferential treatments, while also delivering more immersive,engaging digital shopping experiences to their end-customers.

Such emerging digital commerce models are also addressing major issues such as refunds, payments, fake products, and poor quality goods etc. This move is thus an opportunity for new-age digital players to craft unique offerings that deliver better value to all stakeholders involved.

Ensuring that money is made and circulatedonly in India

The new FDI policy will also contribute to the ‘Make in India’ campaign by ensuring that money made in India remains in India. This wasn’t the case earlier due to the heavy penetration of e-commerce players selling foreign-owned brands to Indian shoppers. The money will now circulate only in the Indian market, putting an end to exclusive customer deals. For instance, brands won’t be giving away free products as there won’t be any partnership between them and online retail platforms.

Impact on customers
Since the policy prevents exclusive marketing, it now halts online marketplaces from exclusively selling a product. Hence, manufacturers will now be mandated to sell their products on all marketplaces, which is why the products which earlier were only exclusively available on Amazon or Flipkart will now be available everywhere, giving customers more choices than ever.

Besides, since the price of products on both online and offline platforms will now be almost same, the customers who were completely reliant on online shopping, even for basic needs such as clothing and groceries,may move back to local retailers. This, however, is not guaranteed;one of the main reasons why consumersadopted online shopping was the level of convenience that it delivers. Newer business models which combine the trustworthiness and transparency of offline retail with the convenience of online shopping might emerge as the big winners here.

The road ahead

Given that the recent policy changes are a step towards creating a robust e-commerce sector in India, online marketplaces should start evaluating their business practices.Apart from creating long-term stability, it is envisioned that the policy changes will lead to more players working towards the mutual benefit of all involved, including stakeholders, merchants, and consumers. This policy will also bring more innovation to the country’s retail sector and unlock fresh business opportunities for local retailers who have so far been left relatively untouched by the digital wave.