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Big Basket's ecommerce model under FDI scanner

Update On :21 April 2016

Big Basket's ecommerce model under FDI scanner

Department of Industrial Policy and Promotion (DIPP) has asked the online supermarket company Big Basket to show how its e-commerce model was compliant with the new foreign direct investment (FDI) guidelines for the sector released recently, said a source in the know of the development.

The source said the Bangalore-based e-tailer, which sells food and groceries, has been asked to "prove" whether its business model was that of a marketplace or based on inventory.

They have been asked to prove whether their model was pure marketplace or inventory-based. If they are able to prove that (they are a marketplace) then they can continue but if they are non-compliant then they will have to restructure their model to be compliant with the new rules," he said.

Under the new rules, up to 100% FDI would be permitted through automatic route to business-to-business (B2B) e-commerce player that operates on a marketplace model. However, no FDI would be allowed in inventory-based ecommerce model.

Post the announcement of the new guidelines, ecommerce companies have remodelling their business structure to comply with them. Even, the home-grown e-tailer Flipkart is reportedly looking to restructure its business by downsizing the share of one of its largest sellers W S Retail on its platform. It will be doing this to meet the mandated norm of 25% total sales limit for a single vendor on an online platform.

Other online marketplaces Jabong, Myntra, and Amazon, which have their sellers like Xerion Retail, Vector e-commerce and Cloudtail, respectively, would also have to alter their business structure to adhere to the new rules.

According to the source, DIPP officials have asked Big Basket to provide more clarity on its business model.

A senior industry executive, who spoke on condition of anonymity, felt the current model of the BigBasket did not seem compliant with the e-commerce FDI rule, which clearly states that no FDI will be permitted in B2C ecommerce business that has an inventory-based model.

I think it (Big Basket) is not in compliance (with the new FDI rules). I am not a lawyer but I feel they have a completely inventory-led model," he said.

He said; "They have their own private label. They buy all their stuff from (FMCG companies like) ITC or Hindustan Unilever or Procter & Gamble and then sell them to customers. So, basically they first procure and then sell it".

The executive said that business model of Big Basket was against the intent of the FDI rules, which was to "secure the last-mile retailers".

They are obviously bypassing the retailer. They are doing their business directly with the companies and the brands and then directly with customers. So, they going against the government's intent to ensure that the ecommerce companies do not affect the businesses of the brick and mortar retailers," he said.

Big Basket refused to comment on the information with dna. In a response to our email they said; "As discussed, Big Basket won't be able to participate in FDI related stories.

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