Centre permits 100 per cent FDI in e-commerce
- In a move that is expected to boost foreign investment in the e-commerce space, the government clarified its position on foreign investments in e-commerce and permitted 100 per cent FDI in the market place format of e-commerce retailing under the automatic route.
- FDI has not been permitted in inventory-based model of e-commerce
- the government extended the definition of marketplace to include support services to sellers with respect to warehousing, logistics, order fulfillment, call centre, payment collection and other services.
- As per the guidelines, while e-commerce means buying and selling of goods and services, including digital products over digital and electronic network, the marketplace 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.
- Where as 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.
- Along with defining ‘e-commerce’, ‘inventory-based model’ and ‘market place model’, the government also introduced guidelines relating to deep discounting by the players and as to what percentage of sale can be affected through one vendor or group companies.
- e-commerce firm will not be permitted to sell more than 25 per cent of the sales affected through its market place from one vendor or their group companies.
- e-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field.
- India has allowed 100% foreign investment in business-to-business (B2B) e-commerce but none in retail e-commerce—i.e., business-to-consumer, or B2C.
- It also notified new rules which could potentially end the discount wars, much to the disappointment of consumers. This is because the rules now prohibit marketplaces from offering discounts and capping total sales originating from a group company or one vendor at 25%.
- level the playing field with offline stores, which have witnessed a slump in footfalls corresponding to the increase in e-commerce.
- The new regulations mean e commerce companies may have to find new sellers on its platform.