RBI guidelines for 100% FDI in E-Commerce

rbi guidelines

Introduction

The tremendous growth of e-commerce market required streamlining in currency flow and regulation of e-commerce companies. In this purview, RBI along with DIPP have released guidelines for e-commerce companies



Nodal Agencies

  • Department of Industrial Policy and Promotion (DIPP) is the nodal agency to provide licenses to e-commerce companies 
  • DIPP works under ministry of commerce and industry 
  • RBI regulates the money transactions in e –commerce 
  • Most of the transactions in e-commerce take place online and RBI has a huge role to provide safe and secure online transactions to the customers 

Background of e-commerce in India

  • E-commerce is fast growing industry in India and is expected to touch $69 billion by 2020 
  • Already 100 % FDI is allowed in e-commerce 
  • In the last 2 years, there is a tremendous increase in e-commerce market place competition with the emergence of players like Amazon, Snapdeal, Flipkart, Myntra, e-bay etc 
  • The e-commerce companies give huge offers and discounts that drastically affected the sales of traditional brick and mortar companies 
  • Most of the traditional companies have gone out of business due to the heavy competition in e-commerce market place 
  • In this context, certain guidelines and measures needed to be taken to check the online companies from give such high discounts and offers to customers 

Issues and Guidelines

  • The recently released guidelines address two major issues of prominent display and online monopoly 
  • First, a large vendor with big discounts will get prominent display in online portals like Amazon, Snapdeal etc 
  • This forces other retailers in the online portal to reduce their prices and also get lower display 
  • Fixing of a floor price for the products in e-commerce is the recommended guideline to curb the above practice 
  • Second, monopoly creation in online market place 
  • WS retail in Flipkart alone accounts for more than 35% of sales 
  • CloudTail India sales in Amazon exceeds 40 % 
  • A single e-commerce entity is restricted to only 25 percent of the sales is the recommended guideline to prevent the above monopoly in e-commerce sales 

Implications of the guidelines

  • Customers cannot enjoy the current huge online discounts once the guidelines come into force as the online retailers will be forced to reduce the discounts 
  • The guideline will provide a level playing field for both online and traditional brick and mortar companies 
  • The new guidelines will put an end to the existing predatory pricing 
  • The guidelines constitute a direct or indirect influence on the online market which is fast growing and needs streamlining 
  • The guidelines have been released as a first measure to regulate the online market 

Conclusion

  • The guidelines will make the e-commerce players operate as technology providers and not as retailers 
  • Market places will serve as only technology providing platforms to sellers and not get in to inventory based models resulting in predatory pricing 
  • The guidelines have put restrictions on the existing players and the new entrants in to the online market place 
  • Critics argue this to be a bureaucratic discretion 
  • The new guidelines clearly separate inventory based models from market based e-commerce 
  • In inventory based models, there is no FDI allowed 
  • 100 % FDI is allowed only in market based e-commerce 
  • The guidelines must be transformed in to policies and implemented strongly by the nodal agencies – DIPP and RBI 
  • Competition commission of India must establish a committee to look into the existing predatory pricing regime in online market place 
  • Overall, customers will not enjoy the huge discounts that they are enjoying now from the online shopping portals after the guidelines are implemented 


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