The new FDI rule is aimed at uplifting Indian sellers, especially those with physical presence only, but the move is likely to make life difficult for the regular online shopper. (Illustration: Nilanjan Das)
HIGHLIGHTS
- The new policy for e-commerce bars companies from selling products exclusively on their online portals
- Discounts offered by online e-commerce firms are expected to drop sharply under the new FDI policy
- Companies like Amazon and Flipkart are now looking to include more third-party sellers into their system
New Foreign Direct Investment (FDI) rules in e-commerce, intended at providing a level-playing field to Indian brick-and-mortar or physical stores, came into effect since February 1.
The new policy for e-commerce bars companies from selling products exclusively on their online portals. Online entities with foreign investments cannot offer products sold by retailers in which they hold equity stake.
It also mandates online e-commerce giants including Amazon and Walmart-owned Flipkart from stocking a quarter or 25 per cent of their inventory from a single vendor.
The government's new FDI rule has also debarred such online marketplaces from manipulating the price of products or offer deep discounts.
While the topic may sound boring to several customers, a lot could be at stake for the regular online shopper. So, without further ado, let's decode how customers will be affected by the new FDI rules in e-commerce:
No more deep discounts
The new FDI rule is aimed at uplifting Indian sellers, especially those with physical presence only, but the move is likely to make life difficult for the regular online shopper.
You probably have come across several unbelievably cheap deals on Flipkart and Amazon but such discounts are set to dip sharply on a select range of products. In fact, some prices have been already revised by the major online marketplaces.
New purchases from either Amazon or Flipkart would also cost you more as the products will be sold directly via a third-party seller, who is likely to charge more than the existing inventory-based system.
A bulk of customers on e-commerce websites seek to purchase electronic products including mobile phone, digital camera, laptops, video game consoles but the new FDI rules may lead to higher prices.
Why fewer discounts?
The government earlier accused Flipkart and Amazon of violating disrupting marketplace harmony by offering deep discounts.
E-commerce platforms such as Flipkart, Myntra and Amazon earlier used to buy products at bulk from manufacturers at a heavy discount and sold them at a lower cost to entities where they had stakes and these sellers would again sell it on the respective e-commerce platforms.
The price was further brought down by waving off delivery charges and finally by attracting customers through various cashback offers, often using their own payment portals. Amazon Pay is one such example.
However, all major online entities now have to restructure their business patterns to accommodate more third-party sellers where they have no stake.
Such a move is expected to cause a significant dip in terms of discounts as prices of the actual product and extra delivery charges may also apply.
More options for customers
Government said the move would benefit customers as well. By preventing exclusive marketing or selling rights in its new FDI policy for e-commerce, the government has disallowed online marketplaces from exclusively selling a product.
This means manufacturers will have to sell their products to all markets places. Therefore, a new OnePlus phone is likely to be available on a number of portals, leaving the customer with more choices.
This could happen with a wide range of products which was either available on only Flipkart or Amazon.
Online shopping platforms likely to take deep sales knock
The move has already caused a shakeup in operations of Walmart-owned Flipkart and Amazon, even though both companies have either denied commenting on the issue or "welcomed" the FDI policy wearily.
A draft analysis by analyst firm PwC suggested that the new e-commerce policy could lead to a $46 billion or over Rs 3.2 lakh loss terms of sales by 2022.
While both e-commerce outlets are busy adhering to fit in to the new structure, customers should know that the major players have removed a large volume of products from their website.
By the end of February, sweeping changes in prices could be observed apart from changes in pricing strategy.
Rise of physical stores likely
The new rule could create a situation favourable for offline retail stores in the country.
While deeper internet penetration and mobile use led to a rising number of online platforms, a number of customers shop online only to get products at a cheaper rate.
With product prices set to become almost uniform across all selling channels, customers may favour physical stores.
Nothing can be confirmed at the moment but there is a huge possibility that online customers would look to shop more from physical retail stores.
These are some of the major possibilities that may arise out of the fresh FDI rules for e-commerce firms in the country.
While nothing major changes in online shopping pattern, customers will certainly feel a pinch of product prices without deep discounting.
Meanwhile, millions of small-scale and physical retailers in the country have cheered the new FDI policy for e-commerce.
The government's move is likely to propel its image among traders ahead of the crucial 2019 Lok Sabha elections.
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