Foreign direct investment rules for e-commerce marketplaces
India allows 100 percent foreign direct investment (FDI) in the marketplace model of e-commerce, which it defines as a tech platform that connects buyers and sellers.
The new FDI policy, which has come into effect from February this year has barred online marketplaces like Flipkart and Amazon from selling products of companies where they hold stakes and banned exclusive marketing arrangements that could influence product price. It also mandates them to offer equal services or facilities to all its vendors without discrimination.
Equity/FDI Cap Entry Route:Â E-commerce activities 100% Automatic
5.2.15.2.1 Subject to provisions of FDI Policy, e-commerce entities would engage only in
Business to Business (B2B) e-commerce and not in Business to Consumer (B2C) e-commerce.
5.2.15.2.2 Definitions:
i) E-commerce- E-commerce means buying and selling of goods and services including digital products over digital & electronic network.
ii)E-commerce entity- E-commerce entity means a company incorporated under the
Companies Act 1956 or the Companies Act 2013 or a foreign company covered under section 2 (42) of the Companies Act, 2013 or an office, branch or agency in India as provided in section 2 (v) (iii) of FEMA 1999, owned or controlled by a person resident outside India and conducting the e-commerce business.
iii) Inventory based model of e-commerce- 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 the consumers directly.
iv) Marketplace based model of e-commerce- Marketplace based model of e-commerce
means providing of an information technology platform by an e-commerce entity on a digital &Â electronic network to act as a facilitator between buyer and seller.
5.2.15.2.3 Guidelines for Foreign Direct Investment on e-commerce sector
i) 100% FDI under automatic route is permitted in marketplace model of e-commerce.
ii) FDI is not permitted in inventory based model of e-commerce.
5.2.15.2.4 Other Conditions
i) Digital & electronic network will include network of computers, television channels and any other internet application used in automated manner such as web pages, extranets, mobiles etc.
ii) Marketplace e-commerce entity will be permitted to enter into transactions with sellers registered on its platform on B2B basis.
iii) E-commerce marketplace may provide support services to sellers in respect of warehousing, logistics, order fulfillment, call centre, payment collection and other services.
iv) E-commerce entity providing a marketplace will not exercise ownership over the inventory i.e. goods purported to be sold. Such an ownership over the inventory will render the business into inventory based model.
v) An e-commerce entity will not permit more than 25% of the sales value on financial year basis affected through its marketplace from one vendor or their group companies.
vi) 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 customer satisfaction will be responsibility of the seller.
vii) In marketplace model, payments for sale may be facilitated by the e-commerce entity in conformity with the guidelines of the Reserve Bank of India.
viii) In marketplace model, any warrantee/ guarantee of goods and services sold will be
responsibility of the seller.
ix) E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field.
x) Guidelines on cash and carry wholesale trading as given in para 5.2.15.1.2 above will apply on B2B e-commerce.
Subject to the conditions of FDI policy on services sector and applicable laws/regulations,
security and other conditionalities, sale of services through e-commerce will be under automatic route.
Review of Foreign Direct Investment (FDI) policy on various sectors
