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By Economic Bureau

In a good news for e-retailers, the government of India has permitted 100 percent foreign direct investment (FDI) through automatic route in e-commerce. The move will boost foreign firms Amazon and Ebay besides gracing domestic players such as Flipkart and Snapdeal. The decision was announced on March 29.

Indian e-commerce industry is growing rapidly at a rate of over 60 percent and size of the industry is around US$38 billion as of 2016 and may touch US$ 50 billion marks in 2020.

However, the guidelines issued by the Department of Industrial Policy and Promotion (DIPP) said FDI will not be allowed in the inventory-based model of e-commerce, reported PTI


As per the norms, an e-commerce firm will not be permitted to sell more than 25 per cent of total sales from one vendor or its group companies.

“E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field,” the guidelines said.

The cap on single-vendor sales has been welcomed by Tax consultancy PwC which said the cap of 25 percent on sales by a vendor on the marketplace is good for ensuring a broad-basing of vendors.

“This may require some of the operators to go on drawing board to comply with the conditions,” Akash Gupta, Partner and Leader Regulatory, PwC, said.

Meanwhile, a study revealed that the action in e-commerce luxury segment representing four of the top five vendors is led by multi-brand retailers. According to Technavio, a luxury goods consumer prefers shopping in a multi-brand environment. In its report, “Global Luxury Retailing Market 2015-2019”,  Technavio said online department stores are faster than single brands in offering services such as free shipping and easy return policies.

“The global luxury retailing market is witnessing intense competition among the existing vendors and the new entrants,” said Vijay Sirathi, a lead analyst for retail goods and services at Technavio.

“The intense competition constitutes significant risk factors in vendors’ operations,” he said. “Problems in transportation and logistics pose a barrier for foreign players to enter the market. Customs clearance is another challenge faced by foreign players.

It said vendors compete on the basis of customer service and delivery of user experiences online such as price, value, fashion newness, quality, unique content, selection, convenience, technology, order fulfillment, and personalization.

Social media is playing the role of a catalyst in expanding information sharing exchange product-related information and socialization. Globally there is high competition among established vendors and newbies selling similar merchandise. For better differentiation, retailers are spending more on services and experiences online, including content, product selection, and personalization.

Those who want to ahead of the race expect a specific, defined value proposition for consumers will make them succeed in the crowded online retail space. Estimates suggest global luxury e-commerce will reach the size of $41.76 billion by 2019. Global luxury e-commerce has recorded a compounded  annual growth rate of 14.28 percent, and will reach $41.76 billion by 2019. Meanwhile, the rating agency, Crisil stated that Indian online retailing, both direct and through marketplaces, will grow threefold to become US$ 8.06 billion industry by 2016. Also, the growth in Internet retail will also boost offline retail stores.

Amazon expects India to become the fastest e-commerce market and take up a size of US$ 10 billion in gross merchandise value (GMV) in a couple of years. India’s growth rate indicates that its e-tailing market will surpass Japan, Germany and the UK as the largest overseas market.

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