Ending the policy ambiguities that had led to litigation and uncertainty for many foreign investors and domestic e-retailers, the Centre has finally issued fresh guidelines for foreign domestic investments (FDI) in e-commerce allowing 100 per cent FDI in the marketplace-based model — an arrangement where e-commerce companies provide an online platform to other vendors to sell their products.
This flexibility in FDI has come as a breather for the Global e-commerce majors such as Amazon and eBay as well as domestic players with foreign investments such as Flipkart and Snapdeal, which have been operating through the marketplace model.
The Department of Industrial Policy and Promotion (DIPP) have also clarified to the press that the 100 per cent FDI allowed in the marketplace model of e-commerce is not allowed in inventory-based model of e-commerce.
The clarification, however, comes with conditions:
- An e-commerce entity will not permit more than 25 per cent of the sales undertaken through its marketplace from one vendor or their group companies.
- e-commerce companies will not directly or indirectly influence the sale price of goods or services and shall maintain a level playing field; the warrantee or guarantee of goods and services will be the seller’s responsibility. An e-commerce marketplace may, however, provide support services to sellers with respect of warehousing, logistics, payment collection and other services.
- The guidelines clearly clarify that e-commerce entities providing a marketplace will not exercise ownership over the goods sold.
- FDI is not allowed in the inventory-based model — where e-commerce companies sell their own products online — as FDI policy in India does not allow foreign investment in business-to-consumer operations.
However, in the marketplace model, despite the lack of clarity, it was assumed that FDI was allowed; foreign companies used this route to set up e-shops. Domestic companies, such as Flipkart, which accepted foreign investments too switched to the marketplace model. Even though the policy changes works forward in favour of the e commerce biggies, but the same has been criticised by the Confederation of All India Traders.
