Government allows 100% FDI in e-commerce

The government has permitted 100-per cent foreign direct investment (FDI) in the market place format of e-commerce retailing in order to attract more foreign investments.

According to the guidelines issued by the Department of Industrial Policy and Promotion (DIPP) on FDI in e-commerce, FDI will not be allowed in inventory-based model of e-commerce.

As per the extant policy, FDI up to 100 per cent is allowed under the automatic route in business-to-business model of e-commerce.

However, FDI in business-to-consumer e-commerce is allowed in case of a manufacturer selling products manufactured in India; single-brand foreign retail business and in cases where an Indian manufacturer sells his single-brand products through an e-commerce platform where the Indian manufacturer is the investee company and the owner of the brand and manufactures at least 70 per cent of the brands in house and sources at least 30 per cent from Indian manufactures.

At present, global e-tailer giants like Amazon and eBay are operating online marketplaces in India while homegrown players like Flipkart and Snapdeal have foreign investments, even as there were no clear FDI guidelines on various online retail models.

The DIPP has also come out with the definition of 'e-commerce', 'inventory-based model' and 'market place model' in order to bring more clarity.

Under the market place model an e-commerce entity provides an IT platform on a digital and electronic network and act as a facilitator between buyer and seller.

The inventory-based model of e-commerce means an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to consumers directly, according to the guidelines.

A market place entity will be permitted to enter into transactions with sellers registered on its platform on business-to-business basis, DIPP said.

It said that an e-commerce firm, however, will not be permitted to sell more than 25 per cent of the sales effected through its market place from one vendor or their group companies.

''In order to provide clarity to the extant policy, guidelines for FDI on e-commerce sector have been formulated,'' DIPP said.

The government has already allowed 100 per cent FDI in business-to-business (B2B) e-commerce.

As per the guidelines, e-commerce means buying and selling of goods and services, including digital products over digital and electronic network.

Digital and electronic network will include computers, TV channels and other internet application used in automated manner such as web pages, extranets and mobiles.

DIPP said that e-commerce marketplace may provide support services to sellers in respect of warehousing, logistics, order fulfilment, call centre, payment collection and other services.

However, such entities will not exercise ownership over the inventory. ''Such an ownership over the inventory will render the business into inventory based model.''