In what would make raising foreign funding easier for e-commerce players, the government on Tuesday issued guidelines for allowing 100% foreign direct investment (FDI) in the market place format through automatic route.
According to the Department of Industrial Policy and Promotion (DIPP) – the nodal department which sets guidelines and limits for foreign investments, the FDI in e-commerce in the market place format through automatic route will be permitted upto 100% only in “B2B”, ie business to business category. Whereas, in the B2C, ie business to consumer category, the FDI norms will be subject to riders such as when a manufacturer is selling country made goods through online format or in case where a single brand retail firm is selling goods online and is also selling same goods through physical stores, etc.
However, the government said that foreign direct investment (FDI) has not been allowed in inventory-based model of e-commerce.
At present, global e-tailer giants like Amazon and Ebay are operating online marketplaces in India while homegrown players like Flipkart and Snapdeal have foreign investments even as there were no clear FDI guidelines on various online retail models.
DIPP also brought clarity by coming out with specific definitions as what will be considered as ‘e-commerce’, ‘inventory-based model’ and ‘market place model’, for policy management.
It said, market place 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 market place entity will be permitted to enter into transactions with sellers registered on its platform on business-to-business basis, DIPP said.
It said that an e-commerce firm, however, will not be permitted to sell more than 25% of the sales affected through its market place from one vendor or their group companies.
“In order to provide clarity to the extant policy, guidelines for FDI on e-commerce sector have been formulated,” DIPP said.
The government has already allowed 100% FDI in business-to-business (B2B) e-commerce, but due to lack of clarity entities, fund managers, investors were not able to reap the benefits of the policy relaxation to the fullest.