The government has brought clarification to the long awaited FDI policy in the ecommerce sector. As per the notification by the DIPP (Directorate of Industrial Policy and Promotion), 100% FDI is allowed through automatic route in marketplace model of ecommerce. At the same time, FDI is not allowed in inventory model.
The marketplace model is followed by most of the domestic firms including flipkart, snapdeal, and foreign competitor amazon. On the other hand, the inventory model is followed by Chinese aspirant Alibaba.
The new policy gives a thumps down for Alibaba’s dream Indian market entry. But for the Indian firms, the step is a relief as they can go for external funds. Most of the Indian firms already have high level of direct funding from overseas.
FDI policy in ecommerce was brought by the Department of Industrial Policy and Promotion and the government also clearly defined the distinction between marketplace model and inventory model.
At present, 100% FDI is permitted in B2B (business-to-business) transactions under the automatic route.