100% FDI likely in ecommerce marketplace format

The government is considering permitting 100-per cent foreign direct investment (FDI) in the marketplace format of ecommerce retailing with a view to attracting more foreign investments.

The norms on FDI in the sectors of e-commerce and IT and ITeS are expected to be part of detailed guidelines which would be rolled out soon by the government, says PTI citing sources.

Last week, a group of senior officials from DIPP and the departments of corporate affairs and economic affairs, among others, discussed these matters in detail.

If the DIPP proposal is accepted, several e-commerce start-ups like Flipkart and Snapdeal could be chasing market capitalisation of leaders Amazon and eBbay by attracting foreign venture capital in a big way, policymakers feel.

According to sources, DIPP has suggested that 100-per cent FDI should be allowed in ''marketplace model e-commerce'' activities. In such a model, the e-commerce company provides an online platform for buyers and sellers.

DIPP officials argue that since marketplace model e-commerce activities provide an online platform for buyers and sellers FDI in such sectors would allow for a greater spread of the benefits of such investment.

However, the question as to who will ultimately benefit will depend on the choice of sellers and accessibility of the e-commerce marketplace, analysts argue.

There are no clear FDI guidelines on various online retail models and officials also deliberated upon the definition of ''e-commerce''. Currently, it broadly covers transactions between buyer and seller through electronic mode like internet, mobile and televisions.
 
At present, global e-tail giants such as Amazon and EBay are operating online marketplaces in India while homegrown players such as Flipkart and Snapdeal have foreign investments even as there are no clear FDI guidelines on various online retail models.

An e-commerce firm carry its business either through marketplace model or inventory based model. In the inventory based model, a company owns and keeps the goods in warehouses.

The officials also deliberated upon the definition of ''e-commerce''. It may broadly cover transactions between buyer and seller through electronic mode like internet, mobile and televisions.

The Department of Industrial Policy and Promotion (DIPP) is working on guidelines for e-commerce sector in the backdrop of ongoing tussle between online and offline retailers. The department has already carried out stakeholders' consultations with states, e-commerce companies and other departments.

At present, 100 per cent FDI is allowed only in business-to-business (B2B) e-commerce and not in the retail segment.

A DIPP official told Business Standard that the proposal to allow FDI in e-commerce marketplace had been in the works for quite some time. It is believed that while DIPP is bullish on permitting no-holds-barred FDI in the sector, the finance ministry is yet to give a green light to the proposal. If it does get a go-ahead, online marketplace FDI rules would be a part of the detailed guidelines to be issued soon.

E-commerce companies have been in the news for the funds they have raised from foreign investors and the high valuations that have followed.

An online marketplace is seen as a technology platform where multiple sellers are hosted. But players in this space have often been under the scanner of regulatory agencies, courts and domestic retail lobbies over the FDI loophole.

Recently, the Delhi High Court had asked the National Democratic Alliance government to probe 21 e-commerce players for alleged violation of FDI rules.

 However, clarity is expected in the online commerce space as Prime Minister Narendra Modi has backed it as a model for the future.

E-commerce is growing at a fast pace in India. In 2015, the market had risen from $5 billion to $8 billion and is expected to breach the $100-billion mark by 2020.

With varying FDI norms for multi-brand retail, single-brand retail, wholesale, e-commerce, market place, all differing from each other, FDI rules in the retail sector have remained confusing.

At present, 100 per cent FDI is allowed only in business-to-business (B2B) e-commerce and not in the retail segment.

The department has already carried out stakeholders consultations with states, e-commerce companies and other departments.

Flipkart's Sachin Bansal, Snapdeal's Kunal Bahl, and Paytm's Vijay Shekhar Sharma have all pleaded for higher FDI limit in e-commerce marketplace.

Investors like SoftBan's Masayoshi Son, too, had met the prime minister to seek FDI hike in e-commerce.