E-commerce

Also called: online market, online shopping · Topic: Industrial Policy, Public Sector, MSMEs and Disinvestment · NCERT: Class 7, Ch 12 "Understanding Markets"; Class 7, Ch 7 "Physical Infrastructure"

Meaning

E-commerce (electronic commerce) means buying and selling goods or services over the internet, usually on online platforms (websites or apps) that bring buyers and sellers together.

It matters because it lets a small seller reach buyers across the whole country. It also raises hard questions: foreign-owned platforms with deep pockets may push local shops out of business, and a few big platforms may gain too much power over small sellers.

Explanation

How it works

• A platform is the website or app where the buying and selling happens.
• It links buyers, sellers, payment systems and delivery (logistics) in one place.
• Common forms (textbook types):
• B2C (business to consumer): a firm sells to households, for example clothes sold on a shopping app.
• B2B (business to business): a firm sells to another firm, for example raw materials sold to a factory.

• C2C (consumer to consumer): people sell used goods to each other.

• Quick commerce is a newer form. Groceries are delivered within minutes from dark stores, which are warehouses that do not let walk-in customers in.

The two business models (the key exam point)

Model	What the platform does	FDI allowed?
Marketplace model	Only connects buyers and sellers. Owns no inventory (stock of goods).	100%, automatic route (Press Note 3/2016)
Inventory model	Owns the goods it sells, like an online shop.	Not permitted

• FDI (foreign direct investment) is foreign money that buys ownership in an Indian business.
• Automatic route means the foreign investor does not need the government's approval first.
• Why the two models are treated differently:
• A foreign-owned platform that holds its own stock can sell below cost for a long time.
• It can pay for these losses with foreign money.
• Indian retailers cannot survive such losses and close down.
• So the platform is allowed only to act as a neutral "meeting place".

Rules that stop hidden inventory selling (Press Note 2/2018)

• The platform cannot control the inventory of the sellers on it.
• No exclusive deals: a product cannot be sold on only one platform.
• A seller can buy at most 25% of its purchases from the marketplace's group companies.
• Worked example: the 25% cap
• A seller buys goods worth ₹100 lakh in a year.
• At most ₹25 lakh of this can come from companies in the platform's own group.
• The other ₹75 lakh or more must come from outside suppliers.
• Without this cap, the platform could send its own stock through a "friendly" seller and become an inventory model through the back door.

What makes it a problem for small traders

• Deep discounting: selling far below the normal price, often at a loss, to win customers.

• How it hurts: the platform takes a loss for some time → kiranas (local grocery shops) lose customers → some close → competition falls → the platform may raise prices later.

• Dark stores of quick-commerce firms pull daily grocery buyers away from kiranas.

• Gatekeeper power: when one platform becomes so big that sellers cannot avoid it, it can set terms that small sellers must accept.

In India

• FDI rules are set through Press Notes:
• Press Note 3/2016: 100% FDI under the automatic route in the marketplace model only.

• Press Note 2/2018: no control over vendor inventory, no exclusive deals, and the 25% sourcing cap.

• ONDC (Open Network for Digital Commerce), 2022:

• It is public digital infrastructure, like UPI but for trade.
• A seller listed on one app can be found by a buyer on any app that joins the network.
• This reduces the power of any single big platform over small sellers.
• It had 1.16 lakh+ retail sellers from 630+ cities and towns (as of 9 December 2025) [3].

• Under the TEAM (Trade Enablement and Marketing) scheme, the MSME Ministry pays Seller Network Participants to bring MSEs (micro and small enterprises) onto ONDC. The money covers onboarding, cataloguing, logistics, packaging and design [3].

• Competition law:

• The Competition Act, 2002 works ex-post, which means it punishes abuse only after it has happened. Cases take years, and a small seller may have shut down by the time a case ends.
• The Competition (Amendment) Act, 2023 added a deal-value threshold for mergers. The Competition Commission must now review large deals based on their price, even if the company being bought has few assets or little turnover. Such deals are common when big firms buy digital start-ups.

• The Committee on Digital Competition Law submitted a report and a draft Digital Competition Bill (2024). The Ministry of Corporate Affairs (MCA) invited public comments on both [4].

  • The draft is ex-ante: it sets rules in advance.
  • It targets Systemically Significant Digital Enterprises (SSDEs), which are very large platforms.
  • It follows the model of the EU Digital Markets Act.

• Why this matters for MSMEs: 5.93 crore MSMEs were registered on the Udyam portal (as of 4 February 2025) [2]. E-commerce and ONDC can give these firms a national market that they could not reach alone.

Don't confuse with

• Marketplace model vs inventory model: in the marketplace model the platform owns no stock, and 100% FDI is allowed under the automatic route. In the inventory model the platform owns the goods, and FDI is not permitted at all, not even through the government route.
• ONDC vs an e-commerce platform: ONDC is an open network that connects buyer apps and seller apps. It is not a government-run shopping app and does not sell anything itself.
• Ex-ante vs ex-post regulation: the draft Digital Competition Bill (2024) is ex-ante, which means rules are set before any harm [4]. The Competition Act, 2002 is ex-post, which means action is taken only after abuse happens.
• E-commerce vs digital payments (UPI): e-commerce is the buying and selling of goods and services online. UPI is only a way to pay. ONDC is often called "UPI for commerce" because it copies UPI's open-network design, not because it handles payments.

Prelims Hooks

• 100% FDI under the automatic route is allowed only in the marketplace model (Press Note 3/2016). FDI in the inventory model is not permitted. A common trap is an option saying "allowed under the government route".
• Press Note 2/2018: a seller can buy at most 25% of its purchases from the marketplace's group companies. Exclusive deals are banned, and the platform cannot control vendor inventory.
• ONDC (2022) is an open network, not a platform or a government shopping app. It had 1.16 lakh+ retail sellers from 630+ cities and towns (9 December 2025) [3].
• TEAM scheme (MSME Ministry): pays Seller Network Participants to bring MSEs onto ONDC [3].
• Draft Digital Competition Bill (2024): ex-ante, targets SSDEs, modelled on the EU Digital Markets Act [4].
• Competition (Amendment) Act, 2023 added a deal-value threshold, which catches big buyouts of digital start-ups that have small assets.

Mains Points

• Opportunity vs threat for small producers (GS-III):
• E-commerce opens national markets to small sellers and artisans who cannot afford their own shops or brands.
• But deep discounting and quick-commerce dark stores hurt kiranas. This is the same "compete or perish" pressure that globalisation put on small producers.

• The trade-off: protect small traders without slowing innovation or taking away the low prices that consumers gain from.

• India's three-tool approach (GS-II/III):

• FDI conditions: the marketplace-only rule and the Press Note 2/2018 safeguards stop foreign-funded, loss-making price wars.
• Public digital infrastructure: ONDC (1.16 lakh+ sellers [3]) and the TEAM scheme reduce small sellers' dependence on one big platform.

• A possible ex-ante digital competition law [4]: this is needed because ex-post cases under the Competition Act come too late to save small sellers.

• Regulation debate:

• Ex-ante rules act fast and protect small sellers before harm is done.
• But rules copied from the EU DMA may put a heavy compliance burden on Indian firms that grow large, and may reduce investment in new services.
• A balanced answer should call for clear, narrow limits on which firms count as SSDEs, with ONDC-type open networks increasing competition alongside the law.

Related concepts

• Missing middle
• Dwarf firms
• Gazelle
• Industrial cluster
• Agglomeration economies
• Marketplace model of e-commerce
• Inventory model of e-commerce
• Ex-ante regulation of digital markets

Read more

• Small producers under globalisation: compete or perish, the missing middle, clusters and platforms