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30/03/2016 04:39pm

100% FDI in e-commerce: Good or not good for MSMEs?

image 100% FDI in e-commerce: Good or not good for MSMEs?

New Delhi, Mar 30 (KNN) As the government on Tuesday permitted 100 per cent FDI in the market place format of e-commerce retaining under the automatic route, there is a divided view of experts on the decision.

Some experts see the move as a boost for the market place model which acts like an e-mall for small traders who can open their shops online using the platform, whereas some experts opine that the FDI in retail in e-commerce will hamper the trade and commerce conducted by not only the traders but even by the MSME sector.

The FDI has not been permitted in inventory-based model of e-commerce; the government extended the definition of marketplace to include support services to sellers with respect to warehousing, logistics, order fulfilment, call centre, payment collection and other services.

Reacting to this, the apex industry body for MSME associations, FISME (Federation of Indian Micro and Small & Medium Enterprises), said, “Opening up Marketplace model for FDI in preference to inventory based one is eminently sensible.  Now MSMEs can leverage large e-commerce platforms like eBay or Alibaba to sell their products”. 

Some of the e-retail platforms are already offering advance finance/ credits to the SMEs and wide spreading of this credit environment will ease the credit squeeze suffered by the MSMEs.”

Anil Bhardwaj, Secretary General, FISME, said, “100% FDI in e-commerce is for marketplace models only as e-bay and excludes inventory based models such as Amazon.”

Several large global players like Amazon in the e-commerce space work on inventory based model.

Meanwhile, the Confederation of All India Traders (CAIT) said, “FDI in retail in e commerce will hamper the trade and commerce conducted by not only the traders but even by the MSME sector. It will also distort the taxation system since the e-tailers will be registered with taxation department in one state but will be entitled to trade across the Country without seeking registration with tax authorities in other states and will be free to deliver material in another state with paying the local tax of the concerned state whereas on the other hand the traders or the MSMEs need to obtain separate registration in each state if they conduct business activities in more than one state-said both trade leaders.”

The views of the Economists also differ on the issue. Akash Jindal, an Eminent Economist opines that the move will impact the SMEs. The e-commerce players that would come through FDI would buy the products from big manufacturers, a move that would hit the SMEs. The government should rather provide loans to the SMEs at cheaper rates as they are the employment generators of the country.”

Meanwhile, Economist Bharat Bhushan said, “People would get the goods through the e-retailers now at lucrative prices. Currently, there is a cut throat competition in the domestic e-commerce market right now which is impacting the retailers. The government has come out with the decision to protect the domestic players. This will not impact the producers, rather this would end the middle man culture and have a good impact.”

“In order to provide clarity to the extant policy, guidelines for FDI on e-commerce sector have been formulated,” DIPP said.

As per the guidelines, while e-commerce means buying and selling of goods and services, including digital products over digital and electronic network, the marketplace model of e-commerce means providing of an IT platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller.

DIPP further said that the inventory-based model of e-commerce means an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to consumers directly.

Along with defining ‘e-commerce’, ‘inventory-based model’ and ‘market place model’, the government also introduced guidelines relating to deep discounting by the players and as to what percentage of sale can be affected through one vendor or group companies.

DIPP said that an e-commerce firm will not be permitted to sell more than 25 per cent of the sales affected through its market place from one vendor or their group companies. It also said that e-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field. While single vendor or group company for a couple of leading players in India account for around 35 per cent to 40 per cent of the sale, experts say that this will impact business of some players. (KNN Bureau)


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  1. vikash
    vikash 10/01/2019 10:01 AM

    It will destroy our small industries and small businessman.

    Reply to this comment

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