It’s no secret that India’s e-commerce sector is thriving. The country’s e-commerce market will hit $38 billion this year, representing an impressive year-over-year growth of 65% from 2015. Even more remarkable: Indian e-commerce has grown by a jaw-dropping 900% since 2009.
Late last month, the Indian government made some important changes and announcements about its e-commerce policy. A key highlight: Indian e-commerce endeavors can now be fully funded by foreign direct investment (FDI).
At first glance, the policy seemed promising for foreign-owned e-commerce players such as Amazon India, Alibaba-backed Snapdeal and gobs of Western companies—businesses that are keen to launch localized branded e-commerce websites to directly, and authentically, serve Indian customers in their preferred languages. (And there are quite a few preferred languages!)
But there’s a twist to the policy, in place to protect domestic businesses. These e-commerce platforms can only provide a digital marketplace—essentially a “virtual mall” e-retail site—that hosts storefronts for local vendors. This means the foreign-funded e-commerce sites must behave as a kind of technology platform, and little else.
These businesses can’t own the products being sold by local vendors, and can’t influence prices. “This essentially means companies will not be able to offer huge discounts to consumers anymore,” VCCircle recently wrote, “which had become the unique selling proposition for all online retailers. … (This was a) key driver of e-commerce in India.”
Or as a Bloomberg story recently put it: “While foreigners can facilitate retail, they will not really be retailers.” The policy dances to a protectionist tune Indian retailers have played for years. Last year, the Retailers Association of India filed a case in Delhi High Court against Amazon for allegedly violating foreign investment laws. Amazon gave $3 “thank you” gift certificates to Indian customers, which sparked a fussy letter to the country’s Department of Industrial Policy & Promotion. “(D)oes this pass the test of B2B business transaction, even when cash is directly being offered to retail customers?” the retailers wrote.
The jury’s still out on that, but March’s formalized policy—which, as one Indian business site wrote, essentially brings “clarity in a sector where there was none”—continues to put a crimp in the plans of countless Western and foreign businesses that want to sell directly to Indian consumers.
Is there a silver lining for Western and other foreign companies? We spoke with Eric Watson, a Global Online Strategist for our Global Growth team, on the topic.
“In terms of our international B2C e-commerce clients, these new reforms aren’t ideal,” Eric says. “Most traditional Western brands won’t be able to launch localized Indian sites via MotionPoint and sell their products through them. However, we could translate their product feeds, which would sent to one of the ‘marketplaces,’ like Amazon India or other virtual mall.”
There’s certainly some promise in that B2C approach. However, there’s better news for B2B e-commerce and industries, Eric says. Part of the recent reforms also relaxed FDI rules of other sectors outside of e-commerce, he explains.
According to this analysis by New Delhi Television, “(m)anufacturers have been permitted to sell their products through wholesale/retail—including through e-commerce. Also, a single entity has also been allowed to carry out business in wholesale/cash-and-carry and single-brand retail.”
These companies can sell goods or merchandise “to retailers, industrial, commercial, institutional or other professional business users or to other wholesalers and related subordinate service providers,” LiveMint recently reported.
This means “in some of these instances, 100% FDI is now permissible,” Eric says. “This is very good news for our B2B clients—or prospective clients—interested in India and is very clearly removing red tape. Direct sales can happen in this sector.”
The takeaway: The recent policy changes don’t drastically change the game for B2C e-commerce in India—but they do clarify the rules. “But for overall investments in India, and the B2B sites that support those projects, it’s a win,” Eric says.