Elaborate FDI In E-Commerce

With Regard To Flipkart

What is Foreign Direct Investment (FDI)?
Foreign Direct Investment involves the investment of funds by an investor
in an enterprise different from the country of origin of the investor. FDI
deals with investment of foreign monies into the domestic goods and
service markets. FDI can be acted upon by either purchase of a business
in the international sphere or expanding operations of an already
blooming business in that country.
Foreign Direct Investments in a broader spectrum refers to the building of
a new facility or expansion of the enterprise in an economy different from
that of the investor.
Importance of FDI
Foreign Direct Investment or FDI brings about a lot of changes to the
domestic as well as the adopted country market. FDI permits company to
accomplish four major tasks, namely:
It avoids pressure for local production put by the foreign
government.
It overrides trade barriers permitting easy business transactions.
It opens up opportunities in the domestic market like joint ventures,
licensing, co=production, etc.
It helps increase total capacity of production.
What is e-commerce?
e-commerce or electronic commerce involves the buying and selling of
services and goods, transmission of data or funds, through an electronic
network, in this case, the internet. Generally, this term is used in relation
to electronic transactions while shopping online. Business transactions
usually are carried out in the the following four sections:
Business-to-business
Business-to-consumer
Consumer-to-consumer
Consumer-to-business
Changes in the FDI Policy
The Narendra Modi Government introduced 100% FDI in the e-commerce
retail sector under the e-commerce market place model. However, theses
changes were not provided for inventory-based model of e-commerce

retail stores. Its necessary to understand that an inventory based model

of e-commerce means e-commerce transactions in inventory models
wherein the online business has an inventory of services and goods wholly
owned by the e-commerce business and sold directly to the consumer
without any third-party interference.
Amitabh Kant who states, To provide a level playing field to stakeholders,
there is a move in the government to harmonize these varied policies,
has further emphasized on the 100% FDI move by the Government.
This move enables the domestic market, which is a storehouse of
indigenous products to scale up and enhance the quality of their services
and products, which would help them penetrate global markets.
Flipkart and 100% FDI
Flipkart is based on the market place model of e-commerce. However,
most of its entities have more than 25% of their sales coming from a
particular vendor. The Government in the new policy clearly states that
100% FDI is not applicable to market place model e-commerce entities if
more than 25% of their sales come from a single vendor, even if that
vendor has or is a company in itself.
Flipkarts largest seller subsidiary is WS Retail. This subsidiary in itself
provides for more than 25% of the shares. This crosses the threshold by
leaps and bounds. The laws do not bind the subsidiary itself. However, this
leads to Flipkart being held responsible for a cross in its threshold.
Implications
This cap is indeed very restrictive as it may prove to be a roadblock to
vendor who deal in high-value items. This may also have implications to
sellers who deal in the selling of electronic items or high-end luxury
goods, especially if there are discounts to the items.
The government also laid down that market places couldnt influence the
selling price for goods and services. This leads to extra pressure on ecommerce players.
Conclusion
This roadblock may prove to be a major showstopper to market players
like Amazon and Flipkart. However, this leaves the FMCG industry as well
as domestic players like Snapdeal relatively free as they have multiple
sellers and not a particular corporation or industry backing them. Its to be
seen how Flipkart moves over this roadblock and improvises its internal
policy.