IIM Ahmedabad Paper Dispels Government Fears Over E-Commerce FDI, Recommends Inventory Model In B2C Space

Prior to the government’s latest circular relating to foreign direct investment (FDI) in the e-commerce space, which has put in place several restrictions, a paper with entirely contradictory recommendations to the new policy directive was submitted by IIM-Ahmedabad to official think tank NITI Aayog, reports The Economic Times.

The paper advised the government to take into consideration the possibility of permitting FDI in Business to Consumer (B2C) e-commerce companies under the inventory model.

In the paper, IIM-A director Errol D’Souza argues that the conventional wisdom about MNCs having the ability to deploy unlimited capital for ‘predation’ is wrong and that the government must be more receptive towards the pricing influence of marketplaces.

The recommendations were first submitted in June 2017, and in response, IIM-A was given some ‘minor comments’ by NITI Aayog. After this, the institute re-submitted its analysis in October.

The paper had also contended that a monopoly in a marketplace would not always hurt the consumer, cash burn doesn’t necessarily imply predation in the market, and non-price predation such as exclusivity agreements with suppliers may not actually be discriminatory.

Although these recommendations were mostly overlooked in the latest version of the FDI policy for e-commerce, a revised and final policy is still in the works and is expected to be released in the next few weeks, so the paper may still have an influence on the government’s next steps.