Will FDI in e-commerce change the life of local merchants?

The new Modi-government has brought in waves of expectation throughout the country across all sectors, including the e-commerce sector. Along with other favourable economic reforms, the new business-friendly government is likely to allow FDI in e-commerce, an official announcement of which is expected next month.

So far, due to stringent economic reforms and government policies, competition in India’s price sensitive retail market was restricted beyond a certain extent. Global players like Amazon and Walmart were not allowed to sell their own products.

According to a Reuters report, some officials with inside knowledge of the government and retail sector believe that a robust online sector would boost growth in manufacturing and consumption, in turn helping to revive an economy at  a faster pace than just the present 5%. This is the longest period of below-par expansion since late 1980s.

Recognising the significance it would have for small traders especially, to grow their business and expand to reach a larger market, senior government officials have suggested allowing complete FDI in online retail as stakeholders are in favour of it too.

Although investment guidelines and foreign ownership cap will be decided by the government, rules will be clearer and better for FDI in the supermarket sector. For example, local sourcing and investment in the supply chain have to be followed, however implementation of policies will not be left in the hands of state governments.

How will FDI help e-commerce?

  • Online retailers can tie up with local manufacturers to source unique products, allowing differentiation from other retailers.
  • Products can be priced lower due to local sourcing.
  • Consumers will have a wider variety of choices to purchase from, thus increasing sales and spurring growth.
  • Infrastructure will need to be developed accordingly to support the growth of the sector.
  • Middlemen can be eliminated, thus helping to lower costs involved in transactions, labour, inventory, overhead etc.

Efforts already on .. 

At present, global e-commerce players like Amazon and eBay cannot sell products they have sourced themselves and have to rely on third party suppliers, i.e.. they operate as marketplaces where suppliers and merchants can sell products to consumers. Once this ban is lifted, these etailers will be able to sell cheaper goods(due to local sourcing) benefiting both consumers and local merchants using their established supply chains.

Will FDI prove to be the lifeline for local indian online sellers?

Once implemented, FDI in retail will enable local online businesses to have access to much-needed foreign capital. Also, once global retailers like Amazon are allowed to sell their own goods in India, competition will stiffen with home-grown players like Flipkart and Snapdeal.

Favourable government policies, including FDI, will be a boon for expansion and growth don’t you think?

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