Amazon, Snapdeal and Walmart-owned Flipkart cannot sell their own goods to consumers but deliver packets to their door steps only on behalf of the sellers who are supposed to be independent of these online giants – that is India’s foreign investment policy for e-commerce.
As the FDI (Foreign Direct Investment) policy stands, these foreign- funded online retailers are not the owners of the goods, delivered to the consumers, but do everything else on behalf of the sellers /manufacturers who are selling from mobile phones to clothing , grocery, furniture, electricals and what have you through these technology platforms. Amazon or Flipkart, for instance own state of the art warehouses where grading, quality inspection, measurement and packaging is done. On the front -end , online stores, orders and payments are received, scheduled, despatched and delivered to the customers with the entire supply line being tracked online. The goods which reach you have brand names of the sellers or manufacturers – for instance Apple iphone or Nike shoes with Amazon or Flipkart being the online retailer. The policy describes this model as ‘Marketplace model’. In case, the retail online stores or platforms, as they are referred to, had ownership of the goods being despatched to consumers, that model would have been called ‘ Inventory model’, which is not allowed for foreign e-commerce companies which are multi-brand dealers.
In ‘Marketplace model’, India allows100 per cent FDI and is now enforcing strict rules to ensure that no backdoor method is used by the global retailers. They need to even submit their compliance report to the RBI every year.
What is the idea?
The government has to match , at least on paper, the online multi-brand retail policy with the one under which physical stores , called brick and mortar (B&M) , are allowed. In B & M model, India does not allow multi-brand retail but allows warehousing and wholesale by global giants. But how online stores are allowed to sell to retailers while B&M are not permitted? Because, on paper, the goods sold through these online stores are not owned by them. To make it simpler, let’s take example of Ambience Mall in Gurugram or Oberoi Mall in Mumbai. What happens in these malls? The mall , centrally air-conditioned, kept neat and clean with facilities like parking, security, lifts etc , is owned by someone who does not own or run shops there. Likewise, in the virtual world, Amazon or Flipkart is the online mall, hosting hundreds of sellers who are supposed to be independent.
Why this policy restriction? India’s retail trade is close to one trillion dollar or little over one-third the size of the Indian economy. It is largely run by ‘Mom and Pop’ stores , known as ‘kirana’ shops. The trader community, is largely the support base of the BJP and was hit badly by the demonetisation of 2016. The ruling party wants to retain the traders’ loyalty by protecting their interest. Traders , it is believed, are being priced out by deep-pocketed online global giants through deep discounts and freebies.