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No more Big Bang Sales from e-tailers

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CIOL Writers
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Traditional retailers had been clamoring for such a policy since long. The local shop owners in our back yard markets had got a severe beating with the invent of online retailers like Flipkart and Snapdeal who were luring customers offering cut-throat prices. But the party seems to be over for now.

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The government while clarifying on 100 per cent FDI in business-to-business transactions model has clearly laid down new do's and dont's for the marketplace. The two most crucial among them is the 25 percent rule and the clause that marketplaces cannot "directly or indirectly" influence the price at which goods are sold.

Importantly, this ends the uncertainty over the business model being used by India's biggest online retailers which have been challenged in court by conventional retailers. The term was left undefined in the previous FDI policy.

Permitting 100 per cent FDI in the "marketplace" model is surely a relief for e-commerce players but the clauses against online discounts is a victory for neighborhood brick and mortar stores."We want to ensure that there is no predatory pricing by the e-commerce companies which will especially work to the detriment of the small retailers," a government official said. "Government also feels that if any portal is providing discounts on goods it's holding, then it amounts to inventory-based model, which is in contradiction to the marketplace definition."

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Kishore Biyani, CEO of Future Group, the country's largest brick-and-mortar retailer hailing the new guidelines said, "It's a huge step in bringing parity for retailers in the country. It changes everything. They can't operate as a retailer and will just be technology providers. That’s how they should have been in the first place."

The Department of Industrial Policy & Promotion (DIPP) said the marketplace-based model of e-commerce involves providing an information technology platform on a digital and electronic network and acting as a facilitator between buyer and seller. It clarified that FDI is not allowed in inventory based marketplaces or companies that sell goods and services directly to consumers.

The new policy also says no e-commerce company can owe more than 25 percent of its sales to a single vendor. This is intended to ensure giants do not circumvent the marketplace model. Critics and analysts have pointed repeatedly to Flipkart's WS Retail and Amazon's Cloudtail, which both currently account for more than 25 percent of their total sales.

The Confederation of All India Traders (Cait) however did not approve of government's move. "FDI in e-commerce is nothing but a backdoor entry to global retailers which will facilitate them to sidestep restrictions in multi-brand retail since e-commerce has no geographical restrictions," said CAIT Secretary Praveen Khandelwal.

Interestingly no comments whatsoever have been heard from either Flipkart or Amazon camp. Snapdael’s Kunal Bahl in contrast, expressed his glee on Twitter thanking centre for the new guidelines, "Always a great feeling when you stick to the course that you believe in, pays off: Focusing on a pure marketplace and not doing inventory."

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