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eCommerce in India: Game On?

posted: 1 April, 2016

Foreign direct investment (FDI) in India’s burgeoning eCommerce sector has been permitted for a number of years now. The catch, however, has been that those companies could engage exclusively in business-to-business (B2B) activities, leaving the potentially highly lucrative business-to-consumer (B2C) activities tantalisingly out of reach.

The intention was to force FDI-backed companies such as Flipkart and Amazon India towards operating in the country on a ‘marketplace’ rather than ‘inventory-led’ model, but it had rather unintended consequences. Creative ways were found whereby B2C activities were hived-off to wholly Indian-owned, seemingly independent, entities, thus enabling them to operate in both areas of the market simultaneously without flouting the rules (you can read more about this in our 2014 post, ‘eCommerce in India: Opening Pandora’s Box?’).

However this sleight of hand was challenged in late March when India’s Department of Industrial Policy and Promotion announced clarification of its policy. Amongst the amendments was that a ‘marketplace’ is no longer permitted to influence pricing on their platform (in theory easing the threat of ‘deep discounting’ to traditional ‘bricks-and-mortar’ retailers), and, most notably, “an E-commerce entity will not permit more than 25% of the sales affected (sic) through its marketplace from one vendor or their group companies.”

The largest vendor on Flipkart’s platform, WS Retail, is one of its own subsidiaries and is understood to be significantly above the new threshold, whilst the largest vendor on Amazon India’s platform, Cloudtail, a joint venture between and Catamaran Ventures, accounts for 40-50% of sales. Quite the conundrum.

So what’s next? If the past has taught us anything, expect to see an upturn in joint ventures and other arrangements with Indian companies in order to dilute their dependence on any single vendor.

As a quote ascribed to Kishore Biyani succinctly put it: “the difference between marketplace and inventory-based retail is one of accounting.” The game of whack-a-mole goes on…