Date March 30, 2016
Department of Industrial Policy and Promotion issues the ‘Guidelines for Foreign Direct Investment on E-commerce’

With the view of liberalizing and providing clarity to Foreign Direct Investment (“FDI”) in e-commerce sector in India, the Department of Industrial Policy and Promotion (“DIPP”) has issued the “Guidelines for Foreign Direct Investment on E-commerce” vide a press note (2016 Series) on 29 March 2016 (“Guidelines”). Under the Guidelines, DIPP has reiterated that while FDI is permitted up to a 100% under the automatic route in Business to Business e-commerce (“B2B”), the same is prohibited in Business to Consumer (“B2C”) e-commerce. However, it is pertinent to note that DIPP does provide partial relation in the aforesaid norms and permits FDI in B2C e-commerce for the following circumstances:

(i) a manufacturer is permitted to sell its products manufactured in India through e-commerce retail;
(ii) a single brand retail trading entity operating through brick and mortar stores is permitted to undertake retail trading through e-commerce; and
(iii) an Indian manufacturer is permitted to sell its own single brand products through e-commerce retail.

In order to provide further clarity for FDI in the e-commerce sector, the Guidelines defines certain key terms in the said sector, which include, inter alia, the following:

(i) “inventory based model of e-commerce” which means an e-commerce activity where inventory of goods and services is owned by an e-commerce entity and is sold to the consumers directly; and
(ii) “marketplace based model of e-commerce” which means providing of an information technology platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller.

In furtherance of the above, 100% FDI through automatic route is permitted in marketplace based model, while FDI is expressly prohibited in the inventory based model.

The Guidelines also stipulate certain other sector specific condition that would be required to be adhered by the e-commerce entity, which includes the following:

(i) marketplace e-commerce entity would be permitted to enter into transaction with the sellers registered on its platform only on a B2B basis ;
(ii) e-commerce marketplace cannot exercise any ownership of the inventory i.e. goods purported to sold. Any ownership over the inventory will render the said entity’s business as an inventory based model. However, such marketplace e-commerce entity will be permitted to provide support services to sellers such warehousing, logistics, etc.;
(iii) e-commerce entity would not be allowed to permit more that 25% of the sales affected through its marketplace from 1 (one) vendor or their group companies;
(iv) any payment for sale facilitated by the e-commerce entity is required to be in conformity with the guidelines of the Reserve Bank of India; and
(v) e-commerce providing marketplace cannot directly or indirectly influence the sale price of goods or services and is required to maintain a level playing field.

In addition to the above, guidelines on cash and carry wholesale trading as provided under the FDI policy, will continue to apply on B2B e-commerce. Also, sale of services through e-commerce, subject to the FDI policy and applicable laws in force, will be under the automatic route.

The Guidelines can be accessed through the following link: http://dipp.nic.in/English/acts_rules/Press_Notes/pn3_2016.pdf