Govt nod to 100% FDI in e-commerce market places comes with riders

The Government on Tuesday provided further clarity regarding foreign direct investment (FDI) in the fast growing e-commerce sector. As per the FDI policy, contained in the Consolidated FDI Policy Circular 2015, FDI up to 100 per cent under automatic route is permitted in Business to Business (B2B) e-commerce. No FDI is permitted in Business to Consumer (B2C) e-commerce.

However, FDI in B2C e-commerce is permitted in the following circumstances:

  • A manufacturer is permitted to sell its products manufactured in India through e-commerce retail.
  • A single brand retail trading entity operating through brick and mortar stores is permitted to undertake retail trading through e-commerce.
  • An Indian manufacturer is permitted to sell its own single brand products through e-commerce retail. Indian manufacturer would be the investee company, which is the owner of the Indian brand and which manufactures in India, in terms of value, at least 70 per cent of its products in-house and sources at most 30 per cent from Indian manufacturers.

As per the Government’s guidelines for FDI in the e-commerce sector:

  • 100 per cent FDI under the automatic route is permitted in the marketplace model of e-commerce
  • FDI is not permitted in inventory based model of e-commerce

Industry Speak

Amarjeet Singh, Partner – Tax, KPMG in India:
“The Government has come with much needed clarification on foreign investment in e-commerce. There are three important aspects which have been clarified: a) Foreign investment will not be allowed in inventory based model of e-commerce, b) 100 per cent foreign investment will be allowed under automatic route in market place based model which has been defined as providing of an information technology platform by an ecommerce entity on a digital & electronic network to act as a facilitator between buyer and seller, and c) Do’s & Don’t for a market place platform, for instance – not more than 25 per cent of the sales will be affected on market place through from one vendor or their group companies, marketplace will not directly or indirectly influence the sale price of goods or services, marketplace may provide support services to sellers in respect of warehousing, logistics, order fulfillment, call centre, payment collection and other services, etc.

Although, some of the structures practiced by existing players may require alteration but it will give much needed clarity to undertake business with certainty in longer term. Needless to add, this will further facilitate foreign investment in this sector.”

Akash Gupt, Partner and Leader Regulatory, PwC India:
“The announcement brings about the long overdue clarity on FDI policy, specifically the much debated marketplace model. While on the one hand the policy clearly mentions that 100 per cent FDI is permitted in online marketplace, it also lays down operational guidelines to ensure the window is not misused.

The cap of 25 per cent on sales by a vendor on marketplace will ensure a broadbasing of vendors for a true marketplace. This may require some of the operators to go on drawing board to comply with the conditions.

This sector has attracted maximum FDI in the year 2015. With the clarity in policy and given the potential of Indian market, this policy initiative will certainly attract more FDI into the country. Enabling the marketplace operator to provide value add services like warehousing, delivery, payment processing etc will improve customer experience and market outreach for small and medium size suppliers.”

Ujjwal Trikha, Founder & CEO, FurnitureDekho.com:
“The move will help companies in multiple ways as opening doors for foreign investments will enable them to focus on core business proposition and further access to funds. The clear definition by the Department of Industrial Policy & Promotion (DIPP) for market place and inventory based models of e-commerce will help in structuring the industry.”

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