Date March 17, 2017
RBI allows 100% FDI in Market Place Model of E-commerce under Automatic Route

The Reserve Bank of India (RBI) has on 9 March 2017 permitted 100% (one hundred per cent) foreign direct investment (FDI) in ‘market place model of e-commerce’ sector under automatic route and subject to certain conditions. However, the RBI has prohibited FDI in ‘inventory based model of e-commerce’. In this regard, the RBI issued the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Fourth Amendment) Regulations, 2017 (Amendment Regulations).

Salient features under the Amendment Regulations, inter-alia, include:

(i) Definitions: The Amendment Regulations define certain terms as follows:

(a) E-commerce: E-commerce means buying and selling of goods and services including digital products    over digital and electronic network.

(b) Market Place Model of E-commerce: Market place model of e-commerce 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.

(c) Inventory Based Model of E-commerce: means an e-commerce activity where e-commerce entity owns inventory of goods and services and sells to consumers directly.

(d) E-commerce entity: Such entity means (1) a company incorporated under the Indian Companies Act;
(2) a foreign company under the Indian Companies Act, 2013; or (3) an office, branch or agency in India under section 2(v)(iii) of the Foreign Exchange Management Act, 1999, owned or controlled by a person resident outside India and conducting the e-commerce business.

(ii) Conditions for FDI in E-commerce Sector

Per the Amendment Regulations, FDI in e-commerce sector including market place model of e-commerce would now be subject to certain conditions which, inter alia, include:

(a) An e-commerce entity would not permit more than 25% (twenty five per cent) of the sales value on financial year basis affected through its marketplace from one vendor or their group companies.

(b) E-commerce marketplace may provide support services to sellers for warehousing, logistics, order fulfilment, call centre, payment collection and other services.

(c) E-commerce entities providing marketplace would not directly or indirectly influence the sale price of goods or services and would maintain level playing field.

(d) Marketplace e-commerce entity would be permitted to enter into transactions with sellers registered on its platform on ‘Business to Business’ (B2B) basis.

(e) E-commerce entity providing a marketplace would not exercise ownership over the inventory, i.e. goods purported to be sold.

(f) Payments for sale may be facilitated by the e-commerce entity in conformity with the guidelines of the RBI.

(g) Guidelines on cash and carry wholesale trading would apply to B2B e-commerce activities.

(h) Digital and electronic network would include network of computers, television channels and any other internet application used in automated manner such as web pages, extranets, mobiles etc.

(i) Delivery of goods to customers, customer satisfaction, any warranty/ guarantee of goods and services sold would be responsibility of the seller.

(j) Goods/ services made available for sale electronically on website should clearly provide name, address and other contact details of the seller.

(iii) Per the Amendment Regulations, sale of services through e-commerce would be under automatic route subject to the sector specific conditions, applicable laws/ regulations, security and other conditionalities.

Notably, most of the changes brought by the Amendment Regulations are in line with the Consolidated Foreign Direct Investment Policy (FDI Policy).

The Amendment Regulations may be accessed at:

https://www.rbi.org.in/SCRIPTS/NotificationUser.aspx?Id=10884&Mode=0