Boost for e-commerce: 100% FDI permitted in marketplace e-retailing with riders

New Delhi: The government on Tuesday allowed 100 percent FDI through automatic route in the marketplace format of e-commerce retailing, a development that will give a boost to foreign firms like Amazon and Ebay as well as domestic players such as Flipkart and Snapdeal.

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 permitted in inventory-based model of e-commerce.

DIPP in a Press Note 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."

As per the norms, an e-commerce firm will not be permitted to sell more than 25 percent of total sales from one vendor or its group companies.

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

Commenting on the move, Snapdeal said the norms will provide clarity to India's fast growing e-commerce industry.

"These guidelines recognise the transformative role that e-commerce marketplaces will play in the Indian market. It is a comprehensive announcement which will pave the way for accelerated growth of the sector in India," it said.

Tax consultancy firm PwC said the cap of 25 percent 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," Akash Gupt, Partner and Leader Regulatory, PwC, said.

"In order to provide clarity to the extant policy, guidelines for FDI on e-commerce sector have been formulated," DIPP said.

The ecommerce industry has grown rapidly in India logging a growth rate of over 60 percent. Studies have pegged the size of the industry at around USD 38 billion by 2016 and it is expected to touch USD 50 billion mark in 2020.

To bring clarity, the 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.

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.

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

"Post sales, delivery of goods to the customers and customers satisfaction will be 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 warrantee/guarantee of goods and services sold will be responsibility of the seller.

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

Currently, FDI upto 100 percent under automatic route is permitted in business-to-business e-commerce but no FDI is allowed in B2C.

However, FDI in B2C e-commerce is permitted in certain circumstances like a manufacturer is permitted to sell its product manufactured in India through e-retailing.

A single brand retail trading entity operating through brick and mortar stores is allowed to undertake retail trading through online platforms.

The new guidelines are expected to facilitate entry of foreign players into the booming Indian e-commerce industry. Chinese retailer Alibaba, which holds a significant stake in payment solutions provider Paytm, has already expressed interest to enter the Indian market.

Also, the move would help domestic players tap investment easily.