How The New FDI E-Commerce Policy Could Impact Your Small Business

How The New FDI E-Commerce Policy Could Impact Your Small Business
(Last Updated On: May 14, 2019)

The New FDI e-commerce policy is in motion, with over thousands of products vanishing from online marketplaces. Small businesses have slowly begun to accept the digitisation of their businesses and are looking to explore new markets. So, is the new FDI e-commerce policy a good idea for SMEs in the long run?

According to the Government, the new policy was drafted to give SMEs more control of their businesses. The main motive behind this policy was to promote consumer interest in stores that are not part of online marketplaces. Through the policy, the GoI also seeks to ensure a fair, competitive and transparent way of doing business.

The new FDI E-Commerce policy:

In December 2016, the government introduced a law that prohibited online marketplaces from exercising 100% ownership rights on vendors inventory listed on the platform.

On February 1st, 2019,  a major change was implemented on the FDI e-commerce policy. Under this new policy, an online marketplace can exercise control on vendor inventory only if they sold more than 25% of its products on the marketplace.

How will SMEs be affected by the new e-commerce policy?

While the policy maintained a threshold of 25% with regard to vendor inventory on a marketplace, it also highlighted that if an online marketplace has some equity in a small or medium business, the SME cannot list itself on that marketplace.

The new policy could have some effect on small and medium businesses in India. Here are the pros and cons.

The Good Potential:

The 25% threshold opens up a world of possibilities for SMEs. It allows businesses to diversify their products across different online platforms and gain a wider reach.

Before the policies came in motion, foreign marketplaces benefitted from small business vendors on their platform. Before, online marketplaces were not liable to assist or partake in the operations of their vendors’ inventory management. However, with the new policies, things are looking different.

As per the Press Note 2018, online marketplace entities must now facilitate warehousing, logistics, marketing and financing services to SME vendors who sell on their platform. With this, the Government hopes to push for better and equal opportunities for all SME vendors to sell across e-commerce platforms. This could particularly help those small businesses that have no budget aside for marketing or advertising.

The Not-so-great news:

The new policies could limit incentives to small business vendors from online marketplaces that have FDI. For many small businesses, giant e-commerce platforms allow them to explore new markets. The new laws could limit existing SME growth on the marketplace platform.

The policy surprised retail giants like Amazon, Flipkart and Walmart, who set out to expand operations in India. This resulted in an overnight disappearance of discounts, products and offers from these sites. The volatility on marketplaces like these is a huge risk for small businesses.

What should you do in such cases? Switch to a platform that gives you more control over your products. Try the Instamojo Online Store.

For any SME starting out, there are online store portals and payment gateways that ease the process of selling online. Create and control your very own online store in under 2 minutes and start selling.

Read:  All you need to know about the Instamojo online store. 


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