Government allows 100% FDI in e-commerce marketplace model

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New Delhi: The government on Tuesday permitted 100% foreign direct investment (FDI) under the automatic route for retail trading, or B2C (business-to-consumer) transactions, in the marketplace model of e-commerce. The government has also defined what constitutes a marketplace.

“100% FDI is permitted under automatic route in marketplace model of e-commerce. FDI is not permitted in inventory-based model of e-commerce,” said a press note released by the Department of Industrial Policy and Promotion (DIPP), under the ministry of commerce and industry.

Marketplace model of e-commerce has been defined as providing an “information technology platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller”. At present, 100% FDI is permitted in B2B (business-to-business) transactions under the automatic route.

This notification has been long-awaited by e-commerce firms, such as Flipkart Ltd, Snapdeal and Amazon India, and brick-and-mortar companies. The notification is expected to redefine the way online retail is done in India.

The press note also clearly states that an e-commerce entity will not own the inventory that is being sold on the platform. It has also stipulated that an e-commerce entity will not permit more than 25% of the sales through its marketplace from one vendor or its group companies. Both these stipulations are likely to force some of the entities operating in India to revisit their business models to conform to the new rules.

Kunal Bahl, chief executive of Snapdeal, welcomed the government’s move. “Great to see the guidelines around 100% FDI in e-commerce marketplaces. Glad the government recognises and supports an industry transforming India!” he tweeted