30 Mar 2016 12:06 IST

Centre allows 100% FDI in marketplace-based e-tailing

Caveats apply, but clarification legitimises e-commerce majors’ operations

The Centre has issued fresh guidelines for foreign domestic investments (FDI) in e-commerce allowing 100 per cent FDI in the marketplace-based model — an arrangement where e-commerce companies provide an online platform to other vendors to sell their products.

This ends the policy ambiguity that had led to litigation and uncertainty for foreign investors as well as domestic e-retailers.

Global e-commerce majors such as Amazon and eBay as well as domestic players with foreign investments such as Flipkart and Snapdeal, which have been operating through the marketplace model, can breathe easy as their activities have been legitimised.

“100 per cent FDI is allowed in marketplace model of e-commerce. FDI is not allowed in inventory-based model of e-commerce,” a press note from the Department of Industrial Policy and Promotion (DIPP) stated.


The clarification, however, comes with conditions: an e-commerce entity will not permit more than 25 per cent of the sales undertaken through its marketplace from one vendor or their group companies.

Also, e-commerce companies will not directly or indirectly influence the sale price of goods or services and shall maintain a level playing field; the warrantee or guarantee of goods and services will be the seller’s responsibility.

Read: FDI in online marketplace: some players may have to change model

An e-commerce marketplace may, however, provide support services to sellers in respect of warehousing, logistics, payment collection and other services.

The guidelines clarify that e-commerce entities providing a marketplace will not exercise ownership over the goods sold. “Such an ownership… will render the business into inventory-based model,” it said.

FDI is not allowed in the inventory-based model — where e-commerce companies sell their own products online — as FDI policy in India does not allow foreign investment in business-to-consumer operations.

However, in the marketplace model, despite the lack of clarity, it was assumed that FDI was allowed; foreign companies used this route to set up e-shops. Domestic companies, such as Flipkart, which accepted foreign investments, too switched to the marketplace model.

Last year, the Retailers Association of India and the All India Footwear Manufacturers & Retailers Association filed petitions in the Delhi High Court alleging that e-commerce companies were circumventing FDI rules using the marketplace model.

In January, the DIPP told the Delhi High Court that the marketplace model is “not recognised” in the FDI policy. It also said that it was up to the Enforcement Directorate to investigate whether FDI rules had been violated by online retailers.

The Centre’s latest clarification, which clears the air, has been criticised by the Confederation of All India Traders.

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