'FDI in e-retail to bring in clarity, boost sector'

New Delhi: Leading e-retailers, including Snapdeal, Tuesday welcomed the government's decision to open e-commerce market place for 100 percent FDI, even as IT industry body Nasscom termed 25 percent cap on sales from a single vendor or group entities as "restrictive".

"...More so if the vendor sells high value items. The industry might face difficulties in case of sale of electronic items, where a vendor maybe offering exclusive access to certain items or discounts. Marketplaces have no control on how a product is priced and only organise 'sales' where vendors participate," Nasscom said in a statement.

Snapdeal said the norms will provide clarity to India's fast growing e-commerce industry.

"These guidelines recognise the transformative role that e-commerce marketplaces will play in the Indian market. It is a comprehensive announcement which will pave the way for accelerated growth of the sector in India," it said.

The government today, while allowing 100 percent FDI in market place format of eCommerce retail, said these firms will not be permitted to sell more than 25 percent of the sales affected through its market place from one vendor or their group companies.

"The announcement brings about the long overdue clarity on FDI policy, specifically the much debated marketplace model... The cap of 25 percent on sales by a vendor on marketplace will ensure a broadbasing of vendors for a true market place," PwC Partner and Leader Regulatory Akash Gupt said.

This may require some of the operators to go on drawing board to comply with the conditions, he added.

Sellers like Cloudtail and WS Retail account for major chunk of sales on Amazon and Flipkart, respectively.

Cloudtail is a joint venture between Amazon Asia and Infosys founder NR Narayana Murthy's personal investment vehicle Catamaran.
Similarly, WS Retail was set up by Flipkart co-founders Sachin Bansal and Binny Bansal in 2010. They sold off their stake in September 2012 and some former Flipkart employees own a large part of stake in the venture.

WS Retail accounts for a significant portion of products sold on Flipkart.

Emails sent to Flipkart and Amazon remained unanswered.

ShopClues CEO and co-founder Sanjay Sethi said the move will help in supporting the vision of Make in India as well and also create more job opportunities in the country.

"The clarity of the definition of e-commerce and marketplace model categorically will allow many players (national and international) to enter the industry through marketplace route," he added.

Vivek Gupta, Partner at BMR Advisors said the government has chosen to "bless the marketplace model" with some safeguards that the "marketplace should not act like the retailer".

"Although, some of the structures practised by existing players may require alteration but it will give much needed clarity to undertake business with certainty in longer term," Amarjeet Singh, Partner (Tax) at KPMG India said.

Paresh Parekh of EY said, "I expect few more global e-commerce players now finalising their India entry plans. There were lot of concerns on FDI which have now been addressed."

But certain new conditions introduced regarding limit on single vendor sales through marketplace could impact some existing market place e-commerce models, he added.

Companies like Alibaba, Ant Financial Services Group, Softbank as well as venture capital firms like Tiger Global have invested in eCommerce ventures like Snapdeal, One97 (parent of Paytm) and Flipkart.

To bring clarity, the DIPP has also come out with the definition of 'e-commerce', 'inventory-based model' and 'market place model'.

The government has already allowed 100 percent FDI in business-to-business (B2B) e-commerce.

Internet and Mobile Association of India (IAMAI) said the clarification will help build a robust FDI norm in the sector.

"The move will usher in considerable investments and will immensely benefit the consumers and the small and medium industries, and will also open up avenues for employment generation. We hope that going forward, the government will also allow 100 percent FDI in inventory-based B2C e-commerce activities," IAMAI President Subho Ray said.

Kumar Rajagopalan, CEO, Retailers Association of India (RAI) said that the announcement of the marketplace policy is a wonderful clarification.

"An e-commerce firm will also not be permitted to sell more than 25 percent of total sales from one vendor or its group companies which ensure e commerce company to operate as true marketplace. The definitions in the notification will prevent marketplaces from behaving like pseudo retailers," RAI said in a statement.

Gupt said the eCommerce sector has attracted maximum FDI in the year 2015.

"With the clarity in policy and given the potential of Indian market, this policy initiative will certainly attract more FDI into the country. Enabling the marketplace operator to provide value add services like warehousing, delivery, payment processing etc will improve customer experience and market outreach for small and medium size suppliers," he said.