e-commerce models in India

E-commerce companies can operate under two different models in India.
- Marketplace based model where the e-commerce firm simply acts as a platform that connects buyers and sellers. 100% FDI is allowed in e-commerce companies in this model.
- Inventory based model where the inventory of goods sold on the portal is owned or controlled by the e-commerce company and is sold to the consumers directly. FDI is not allowed under this model. Only in the trading of locally produced food products, up to 100% FDI is allowed in the inventory model, that, too, with prior government approval.

A U.S. lobby group that represents firms including Amazon.com and Walmart has urged India not to tighten foreign investment rules for e-commerce companies again.
Recently, it was reported that India is considering revising the rules after traders in the country accused Amazon’s Indian division and Walmart’s Flipkart of creating complex structures to bypass investment regulations.

India allows foreign e-commerce players to operate as only a marketplace but local traders say the U.S. giants promote select sellers and offer deep discounts, which hurts business for smaller local retailers.
In 2018, India changed its foreign direct investment rules to deter foreign firms offering products from sellers in which they have an equity stake.
The Centre is now considering tightening those rules again to include sellers in which a foreign e-commerce firm holds indirect stake through its parent.

In 2018, the Department for Promotion of Industry and Internal Trade (DPIIT) issued stricter guidelines that govern FDI in e-commerce firms. As per the revised guidelines,
- Vendors that have any stake owned by an e-commerce company cannot sell their products on that e-commerce company’s portal.
- Any vendor who purchases 25% or more of its inventory from an e-commerce group company will be considered to be controlled by that e-commerce company, and thereby barred from selling on its portal.
- The e-commerce firm will not be allowed to influence the price of a product sold on its portal by giving incentives to particular vendors.
- All vendors on the e-commerce platform should be provided services in a fair and non-discriminatory manner. Services include fulfilment, logistics, warehousing, advertisement, payments, and financing among others.

Large e-commerce companies such as Amazon and Flipkart, while not owning inventory themselves, have been providing a platform for their group companies such as CloudTail and WS Retail respectively.
This kind of a relationship with vendors is the primary reason for price unfairness in the e-commerce marketplace. It may seem beneficial for end customers. Yet, it has managed to destroy the competitive ecosystem.

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