Government Permits 100% FDI in Online Marketplaces

The government permits 100% FDI in the marketplace format of e-commerce retailing to attract foreign investment.

The Government is bringing in 100% FDI in the e-commerce sector in India. (Photo: The Quint)

The government today permitted 100 percent FDI in the marketplace format of e-commerce retailing with a view to attracting 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 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.

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

100 percent FDI in e-commerce is a great initiative for the marketplace format of e-commerce retailing as it will help attract foreign investments in the country. It will be beneficial for consumers and will help in supporting the vision of Make in India as well and also create more job opportunities in the country. The clarity of the definition of e-commerce and marketplace model categorically will allow many players (national and international) to enter the industry through marketplace route.

<b>Sanjay Sethi, CEO and Co-founder, ShopClues</b>

The logo of India’s largest online marketplace Flipkart is seen on a building in Bengaluru, India.( Photo: Reuters)

The Marketplace Model

Marketplace model of e-commerce means providing 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

The inventory-based model of e-commerce means an e-commerce activity where the inventory of goods and services is owned by an 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 a 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.

It’s time for homegrown players like Flipkart and Snapdeal to dig deep and leverage their experience and insight of the market before global players like Alibaba come and eat their lunch.&nbsp;

Tushar Kanwar, Technology expert

(Photo: iStockphoto)

“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. DIPP said that in the marketplace model goods/services made available for sale electronically on websites should clearly provide the name, address and other contact details of the seller.

“Post sales, delivery of goods to the customers and customers satisfaction will be the responsibility of the seller,” it said, adding in marketplace model, payments for sale may be facilitated by the e-commerce entity in conformity with the RBI rules. In this model, any warranty/guarantee of goods and services sold will be the responsibility of the seller.

“E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain a level playing field,” it said.

Further, the guideline said “subject to the conditions of the FDI policy on the services sector and applicable laws/regulations and other conditionalities, the sale of services through e-commerce will be under automatic route”.

This is also a good move for players like Alibaba who have been considering entering the Indian e-commerce space this year.

(With inputs from PTI)