Slower growth rate of e-commerce due to policy hurdles

The Indian e-commerce market has evolved into one of the most potential sectors of Indian retail industry. The remarkable growth of the sector has attracted many an investor into making crucial investments resulting in accelerated growth of Indian e-commerce. Last week’s Flipkart-Myntra deal is reportedly $300 million while Snapdeal received funding amounting to $100 million from a group of overseas investors.

However, restrictions due to the FDI policies from the government is hampering what could otherwise be an exponential growth in the Indian e-commerce sector. Huge infusions of cash and expertise are required to fully exploit the potential of the industry. With overseas capital in place, e-commerce players will have the flexibility to try out other models of operations (much-needed) and adopt according to what proves beneficial.

The current FDI policy allows investments into B2B (Business to Business) e-commerce only and not in B2C (Business to Consumer) e-commerce. Hence, most players operate on the marketplace model – they provide the online platform/virtual marketplace for sellers to list products, interact with customers and sell.

However, the marketplace model of operations means very less margins and control over quality of service, quality of products, delivery etc. Although the inventory model, or even a mix of marketplace-inventory model allows retailers to innovate and expand their product offerings, most online retailers prefer to operate on the marketplace model due to fund requirements and limitations.

Another reason for the less margins, hence slower growth is the cash on delivery payment system. Courier charge more to handle the service and the rate of returns from customers is also higher, which translate into higher costs and extended credit cycles.

Where does this leave an Indian Online Seller?

Everyone hoped for a change in the stringent FDI rules once the new Indian government was in place. However, it is not clear yet if the scene will change substantially. Make the most of advantages given by marketplaces to expand your business and customer reach. With quality products and consistent service levels, customers will begin to identify your brand and products, and want more.

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