Date March 30, 2016
India allows 100% FDI in E-commerce Marketplace Model

In yet another step towards pushing growth in the IT and service sector, the Government of India through 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”) thereby liberalizing and providing clarity to Foreign Direct Investment (“FDI”) in e-commerce sector in India. Under the Guidelines, DIPP has reiterated that while FDI is permitted up to 100% under the automatic route in Business-to-Business (“B2B”) e-commerce, the same is prohibited in Business-to-Consumer (“B2C”) e-commerce. However, FDI in B2C e-commerce is permitted in 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.
Importantly, the Guidelines state that while 100% FDI through the automatic route is permitted in marketplace based model, FDI is expressly prohibited in the inventory based model and has defined these two models as follows:

– “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
– “marketplace based model of e-commerce” which means providing the information technology    platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller.

The Guidelines also stipulate certain other conditions, including the following:

(i) the 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, such as warehousing, logistics, etc., to sellers;
(ii) the e-commerce entity would not be allowed to permit more than 25% of the sales effected through its marketplace from one vendor or their group companies;
(iii) 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
(iv) the e-commerce entities providing a marketplace cannot directly or indirectly influence the sale price of goods or services and are 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