Fast moving consumer goods distributors have raised existential questions to the government regarding foreign-owned e-commerce firms' operating models. According to reports from Business Standard, the All India Consumer Products Distribution Federation has made a plea to the government to examine if foreign-funded e-commerce and quick commerce players can run inventory-led businesses through warehouses and dark stores. This development comes as Walmart-controlled Flipkart and Amazon are upping their quick commerce play, developments that the Indian retail ecosystem players fear would hit them hard.
Under the current foreign direct investment guidelines, foreign e-commerce companies are allowed to operate through marketplace models where sellers own the goods, while Indian companies can own goods and sell them directly to consumers. As reported by Business Standard, the Department for Promotion of Industry and Internal Trade (DPIIT) permits 100% FDI under the automatic route for online business-to-business or marketplace models, but FDI is prohibited in inventory-based models where e-commerce entities directly own and sell inventory to consumers. The rules also restrict foreign marketplace entities from owning or controlling inventory and prevent more than 25% of platform owner's total sales from any single vendor or group company.
According to industry sources cited by Business Standard, there's no comprehensive policy framework for the e-commerce sector in India, with the policy being in development for years and not even a talking point currently. Companies operating in e-commerce must engage with multiple ministries including the Department for Promotion of Industry and Internal Trade (DPIIT), Directorate General of Foreign Trade, Ministry of Commerce, Ministry of Electronics and Information Technology, and Competition Commission of India (CCI). The regulatory complexity has resulted in multiple amendments to FDI rules and intervention by the competition watchdog over the years.
The e-commerce sector is valued at around ₹90 billion currently and is expected to reach ₹250 billion by 2030, according to Business Standard reports. The government has set an ambitious target of ₹300 billion in e-commerce exports by 2030, prompting discussions about allowing FDI-backed platforms to hold inventory only for exports to control entire supply chains. However, no decision has been made on this proposal yet. Industry experts argue that no country in the world has a more complex regulatory landscape in retail than India, a trillion-dollar sector where foreign capital should not be a hurdle for holding inventory.
According to Business Standard reports, industry watchers suggest that more policies are better avoided at a time when technology must move at a certain pace. Devangshu Dutta from Third Eyesight argues that clarity of intent and implementation would be welcome rather than more stringent regulations. Arvind Singhal from The Knowledge Company recommends that domestic traders should compete rather than protest, echoing similar sentiments from the past when then Gujarat chief minister Narendra Modi had advised small traders to adapt to large stores and e-commerce rather than oppose them.
