Why in news:
The Commerce and Industry Ministry has begun consultations with stakeholders (Amazon, Flipkart, small-scale manufacturers, MSMEs, etc.) to explore models for boosting e-commerce exports. MSMEs are pushing the government to allow FDI (Foreign Direct Investment) in the inventory-led model of e-commerce.
UPSC Relevance:
CSE in prelims as well as in mains examination has focused on FDI. A case in point is a following PYQ
Mains PYQ 2014:
Q1: Foreign direct investment in the defence sector is now set to be liberalized. What influence this is expected to have on Indian defence and economy in the short and long run?
Mains PYQ 2013:
Q2: Though India allowed foreign direct investment (FDI) in what is called multi brand retail through joint venture route in September 2012, the FDI ,even after a year, has not picket up. Discuss the reasons.
Prelims PYQ:
Consider the following:(2021)
Foreign currency convertible bonds
Foreign institutional investment with certain conditions
Global depository receipts
Non-resident external deposits
Which of the above can be included in Foreign Direct Investments?
A 1, 2 and 3 only
B 3 only
C 2 and 4 only
D 1 and 4 only
About Inventory led model:
Inventory based model of ecommerce refers to the model where e-commerce marketplaces store inventory from brands, merchants, and sellers and sell the products directly to the consumers. Marketplaces following the inventory model manage the stocks from their sellers, thus helping them in order fulfillment.
Examples:
The most common example of brands following the inventory model is Amazon FBA. Amazon FBA sources the inventory from the sellers and manufacturers, stores it, and dispatches the orders.
E-commerce- E-commerce means buying and selling of goods and services including digital products over digital & electronic network.
E-commerce Models in India:
- Marketplace based model of e-commerce-
- Marketplace based model of e-commerce means providing of an information technology platform by an e-commerce entity on a digital & electronic network to act as a facilitator between buyer and seller.
- FDI allowed: 100% under automatic route.
- Inventory based model of e-commerce-
- Inventory based model of e-commerce means an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly.
- FDI is not allowed in this model as per present rules.
why India does not allow FDI in the inventory-led e-commerce model?
- India’s retail sector is dominated by kirana stores, small shopkeepers, and MSMEs. If foreign players were allowed to own inventory and sell directly to consumers, they could use their financial muscle to dominate the market. This would displace millions of small trader.
- Global giants like Amazon or Walmart could use their deep pockets to sell at very low prices (below cost) to capture market share. This practice, known as predatory pricing, would hurt domestic retailers and reduce competition.
- Retail trade in India employs over 50 million people directly and indirectly. An inventory-led FDI regime could lead to job losses, as foreign e-commerce firms rely on large warehouses, automation, and fewer intermediaries.
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