The Centre’s review policy on foreign direct investment in e-commerce has been welcomed by most industry players, though some have a word of caution.

While most industry players say that the new policy will usher in a level playing field and fair market competition, not everyone is convinced.

Arun Gupta, Founder and CEO, MoMagic Technologies, a mobile internet company, said the new policy is likely to have a negative impact on the overall e-commerce industry and not just Amazon and Flipkart.

New norms

The policy, which was released on Wednesday, tightened the norms around ownership and control over inventory by an e-commerce entity providing a marketplace service. In a circular, the government clarified that e-marketplace players cannot sell products of companies in which they hold a stake. It also takes a stand on deep discounting that has been a bone of contention.

Sanjay Sethi, CEO and Co-Founder, ShopClues, said: “The clarification vindicates our long-standing position on FDI in e-commerce. It is an acknowledgement that all major foreign players have been consistently violating the spirit of the policy from Day 1.”

Kunal Bahl of Snapdeal said in a tweet that the changes will enable a level playing field for all sellers, many of which are micro, small and medium enterprises.

Ashwani Mahajan, National Convenor, Swadeshi Jagaran Manch, an RSS-affiliated outfit, said, “E-commerce players such as Amazon cannot do deep discounts. This means that smaller players can now compete, which they were not able to before.”

“The policy will usher in huge growth for smaller players in the country,” he added. While Flipkart did not offer a comment, Amazon said that it is looking into the circular.

What Clause IV says

Clause IV of the policy states that inventory of a vendor will be deemed to be controlled by an e-commerce marketplace entity if more than 25 per cent of purchases of such a vendor are from the marketplace entity or its group companies.

“This will have a larger impact,” said Gupta of MoMagic. For instance, a vendor sells 60 per cent of products on the platform. With the new policy, e-commerce players will place a restriction on how much they can sell. “This is beneficial for those who do business both online and offline but not for players who solely depend on such platforms,” he added.

Another issue is that it will make it difficult for newer e-commerce players to establish themselves. “For instance, I’m a new e-commerce player. I want to acquire a market. I can do that only by holding some inventory to ensure my supplier initially. The new policy will impact that,” he explained.