Govt. permits 100% FDI in marketplace based model of e-commerce

The Government vide press note 3 dated March 29, 2016 has clarified that 100% foreign direct investment (FDI) is allowed under automatic route in marketplace model of e-commerce. Extant FDI policy permits 100 % FDI under automatic route in B2B (business-to-business) without any conditions whereas FDI is permitted in B2C (Business to Consumer) subject to riders.

Now in order to bring clarity to the extant policy, Govt. has formulated guidelines for FDI in e-commerce sector. The key takeaways are enumerated hereunder:

1. 100% FDI permitted in marketplace model of e-commerce: DIPP clarified that 100% FDI under automatic route shall be permitted in marketplace model of e-commerce, i.e., a model under which e-commerce entity provides an IT platform to act as a facilitator between buyer and seller. In other words, 100% FDI is allowed only when e-commerce entities providing a marketplace shall not exercise ownership over the inventory, i.e., goods to be sold online.

2. FDI not permitted in inventory based model of e-commerce: DIPP clarified that FDI shall not be permitted in inventory based model of e-commerce, i.e., a model under which e-commerce entities own inventory of goods and services and sell directly to consumers.

3. Cap of 25% of sales by a vendor: As per new guidelines, now e-commerce entities shall not permit more than 25% of the sales affected through its marketplace from one vendor or their group companies. The cap of 25% on sales by a vendor on marketplace will encourage entry of new vendors.

4. No warrantee/guarantee on post-sale by E-commerce entities: Now e-commerce entities will not assume liability for post-sale delivery, guarantee/warrantee of goods and services sold in the market place model as such liability of any guarantee/warrantee shall be responsibility of the seller (vendor).

5. No more heavy discounts by e-commerce Cos: The DIPP has strictly clarified that e-commerce entities providing market place shall not directly or indirectly influence the sale price of goods or services and shall maintain level playing field. Hence, now e-commerce Cos can’t provide discounts of their own.