Government Permits 100 Percent FDI in Online Marketplaces

The government on Tuesday permitted 100 percent FDI in the marketplace format of e-commerce retailing with a view to attract more foreign investments.

As per the guidelines issued by the Department of Industrial Policy and Promotion (DIPP) on FDI in e-commerce, foreign direct investment (FDI) has not been allowed in inventory-based model of e-commerce.

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

To bring clarity, DIPP has also come out with the definition of ‘e-commerce’, ‘inventory-based model’ and ‘marketplace model’.

Marketplace model of e-commerce means providing of an IT platform by an e-commerce entity on a digital and electronic network to 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 marketplace 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 percent of the sales affected through its marketplace 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 percent 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.”