India has permitted 100 per cent foreign investment in the e-commerce format in a bid to attract more foreign investments. In a set of guidelines issued by the Department of Industrial Policy and Promotion (DIPP) on FDI in e-commerce, foreign investment was not allowed in the inventory-based model of e-commerce.
Currently Indian online market stores Flipkart and Snapdeal have foreign financial backing as the FDI guidelines on foreign investment remains unclear. To clear the fog, the DIPP has even issued a definition of 'e-commerce', 'inventory-based model' and 'market place model'. 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. An inventory-based model of e-commerce means an e-commerce activity where inventory of goods and services is owned by an e-commerce entity and sold directly to the consumers. The department said a market place entity will be permitted to enter into transactions with sellers registered on is platform on business-to-business. However, an e-commerce firm will not be allowed to sell any more than 25 per cent 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 e-commerce marketplace may provide support services to sellers in respect of warehousing, logistics, order fulfilment, call centre, payment collection and other services. “Such an ownership over the inventory will render the business into inventory based model.” It said that in marketplace model goods/services made available for sale electronically on website should clearly provide name, address and other contact details of the seller. “Post sales, delivery of goods to the customers and customers satisfaction will be responsibility of the seller.”
“E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field,” it said. The guideline also said “subject to the conditions of FDI policy on services sector and applicable laws/regulations and other conditionalities, sale of services through e-commerce will be under automatic route”.
