India’s new e-commerce FDI rules are just what offline retailers wished for

Offline versus online.
Offline versus online.
Image: Reuters/Savita Kirloskar
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The spate of recent bad news that has hit Indian e-commerce players of late offers an opportunity for the country’s brick-and-mortar retailers.

Offline retailers in India faced no pressure to slash prices in February, whereas most e-commerce portals were forced to take down thousands of products from their portals to meet new government regulations, global research firm Jefferies said in a note on Feb. 26.

“Online retailers went soft this month (February) with no key discounting or promotional events,” Jefferies India said, adding that this is in contrast to the sharp discounting they carried out in January to clear inventory and align with the new e-commerce rules.

In recent years, it has become a regular practice for bargain-hungry shoppers in India to match store prices with online rates, which are most often lower as e-commerce portals undercut shop owners to woo customers.

However, February began on a rough note for e-commerce as India’s new foreign direct investment (FDI) policy kicked in. The new rules bar online retailers from engaging in price wars and deep discounting, among other things.

Pressure’s off-line

All this time, “our own industry has faced pressure on offtake of inventory and the number of sales weeks have been expanded to six weeks per season,” Vasanth Kumar, managing director of Lifestyle International, which runs a chain of departmental stores in the country, told the Mint newspaper. “With the new rules, we hope the end of season sale duration to come down.”

Brick-and-mortar retailers could be in for even better times if the government’s proposed e-commerce policy is implemented. On Feb. 23, the Narendra Modi government released a draft national e-commerce policy which has proposed stringent norms for data storage and combating counterfeit goods. This “bodes well for domestic retailers in our view,” Jefferies India noted.

Already, ratings agency CRISIL has estimated that in fiscal year 2020, online sales worth between Rs35,000 crore and Rs40,000 crore could be impacted due to the challenging regulatory environment. On the flip side, physical retailers will gain as their revenues will jump by a between whopping Rs10,000 and Rs12,000 crore in the same time period, as per CRISIL.