Introduction
The pandemic has completely transformed the way businesses operate in India. A prime example of this statement can be found in the fact that India’s e-commerce order volume increased by 36% in the last quarter of 2020, with the personal care, beauty and wellness sectors dominating the e-commerce markets. The government of India is continually trying to introduce reforms in the e-commerce regulations of India in order to establish a level-playing field amongst the key players in the Indian markets as well as protecting the interest of consumers.
Key Advantages for Foreign Investors Investing in the E-commerce Markets of India
Exponential Growth– India has the fastest growing e-commerce market in the world after China. The e-commerce markets of India are expected to grow by 1,200% by 2026 and reach 200 Billion USD by 2027, predicted to surpass the US and become the 2nd Largest e-commerce market in the world by 2034 after China.
Government Initiatives – The initiatives of the Government of India such as “Digital India” “Make in India”, “Start-up India”, “Skill India” and “Innovation Fund” are constantly introducing people to online modes of E-commerce.
Internet Penetration and Increased Awareness – A young demographic along with increased internet and smartphone penetration has contributed exponentially to the growth of the e-commerce markets of India. India has the second highest internet penetration in the world and under the “Digital India” program, as of September 2020, the number of internet connections in India significantly increased to 776.45 million. Smartphone shipments reached 150 million units and 5G smartphone shipments crossed 4 million in 2020, driven by high consumer demand post-lockdown.
Shares of Various Segments in E-Commerce Retail by Value (2020)
(Source: India Brand Equity Foundation)
Legal Regime
Under the Foreign Direct Investment (FDI) Policy of India, 100% FDI under the automatic route is permitted under the B2B (Business to Business) e-commerce model. Whereas FDI in the Inventory Based Model, i.e. inventory of goods and services owned by the e-commerce entity and sold to the consumers directly, is prohibited.
On June 21st, 2021, the Government of India introduced draft amendments to the Consumer Protection (E-Commerce) Rules, 2020. These changes have been introduced on account of the rising complaints from trade organizations in India, including, the Confederation of All India Traders (CAIT), alleging a violation of various Indian laws by foreign e-commerce players in India such as Amazon and Flipkart. Under the new e-commerce rules the government has proposed to end flash sales and mandate all e-commerce entities to appoint a chief compliance officer in order to manifest a proper customer grievance redressal mechanism. Furthermore, related parties and associated enterprises of e-commerce entities have been prohibited from being enlisted as sellers for sale to consumers directly.
Conclusion
The e-commerce markets of India are continually evolving. The new draft amendments introduced by the government will not only change the way in which e-commerce entities conduct business in India but also increase the regulatory burden of these entities. That being said, these changes in the regulatory regime are important to better regulate the large e-commerce markets of India which have a promising future.
Our team of professionals have extensive experience in advising foreign investors invested or seeking to invest in the Indian e-commerce markets. If you have any questions, do reach out to us at info@dandreapartners.com.
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