Government today finally allowed 100% FDI (foreign Direct Investment) in the ever burgeoning online retail space. This will bring in the much needed rules and regulations in the way business is conducted in the retail markets including the online retail and ecommerce businesses. The passage of rules and clear guidelines will bring in the clarity and a level playing field for the brick and mortar players and the ecommerce portals.
The FDI has been sanctioned in the businesses following the marketplace model and not the inventory based business model. By doing so, the guidelines clearly state that the after sales service and warranties should be rested with the sellers and not the platform of e commerce company. The marketplace model allows the buyers and sellers transact over a platform provided by an online company where the liability of holding goods rests with the sellers. So an ecommerce company acts as a market place as against an inventory based business where the company holds the inventory of goods being sold online and thus can decide the price it will command from the sales. Since FDI has been passed only for market place model business, the guidelines would mean that the online companies will only play the role of a platform provider. While they can continue to play a part in logistical support, order fulfillment, call centers, customer care, payment collection and related services. The regulation further states that the e commerce companies will not influence directly or indirectly the sale price of goods being sold and shall maintain the level playing field. Which till now was not being practiced as during the flash sales the e commerce companies are known to offer huge discounts through the sellers on their platforms. This ruling thus may take the sheen away from the ecommerce companies who have been making a buzz around diwali and other seasonal offers in the retail market space offering a very tough competition to the brick and mortar firms.
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