'Some eCommerce companies have to look at restructuring'

In light of the recent development of 100% FDI being allowed in the eCommerce marketplace model, Amit Bagaria, AVP Business at Paytm, discussed with Mamta Bhardwaj of Deccan Herald, his take on the same. Excerpts from the interview:

How do you see this move impacting the industry? Is the market set to expand?

It is a welcome move, as it removes a lot of ambiguity that exists currently. However, it does not necessarily mean market expansion, as FDI in internet commerce always existed.
 
While 100% FDI has been allowed in the marketplace model, it has been disallowed in the inventory model. Could you shed some light on how it has been differentiated and the impact of the same?

In an inventory model, the platform essentially becomes a retail entity. And FDI in retail is restricted. So the new laws/ guidelines are consistent. What they have done though, is clearly explained what marketplace means, and has put in laws such as “not more than 25% sales from one seller” to ensure that companies don’t continue to behave like an online retailer, under the garb of a marketplace.

How is it going to impact marketplace players as opposed to the inventory model players?

As stated above, there are examples of large platforms which in the past have claimed to be a marketplace, but we are behaving like a retail entity. Essentially discounting/influencing sell prices, and concentrating sales to one or two funded/invested sellers. Such entities would now be forced to do away with inventory holding, and would be forced to drive business through real sellers offline.

Will the policy play out differently for large and small eCommerce players? How?

The impact of the policy would not differ much based on the size of the platforms. Though larger players, if needed to restructure, would find it more difficult as some of these built their entire business model on surrogate inventory, which is not under the custody of the business.

Will eCommerce companies look at restructuring?

Some of them will definitely have to. They would have to put more stress in getting more and more offline sellers onboard, and focus on helping them to sell. Because that one seller, which was so far contributing 89- 90% of its business through price discounting, would not be allowed.
 
Will 100% FDI have an impact in the way the eCommerce industry able to leverage technology?

I would rather say some players would be forced to use technology to create a better platform. As throwing money to discount would no longer be allowed.
 
Is it going to impact valuations? 

No. I don't see any real impact on valuations.
 
What would be the greatest outcome of this policy?

The greatest outcome of this policy is what it does for the offline sellers/ retailers. With platforms being forced to do away with surrogate inventory, they would have to focus on getting the right set of seller base onboard, and would have to drive business through its base.