(After the review in December 2018)

The government has made an amendment to the existing FDI policy in ecommerce on 26th of December 2018. After the review, the FDI policy in ecommerce will have the following features.

  1. What is ecommerce?

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

  1. Who is an ecommerce entity?

An e-commerce entity is a company incorporated under the Companies Act 1956 or the Companies Act 2013 or a foreign company covered under the Companies Act, 2013 or an office, branch or agency in India operating under FEMA regulations, owned or controlled by a person resident outside India and conducting the e-commerce business.

  1. Models for ecommerce

The Ecommerce models are generally categorized into two: (i) Inventory Model and (ii) Marketplace model.

(i)  Inventory based model of e-commerce

Inventory based model of e-commerce is an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly (Alibaba).

(ii)  Marketplace based model of e-commerce

Marketplace based model of e-commerce is an information technology platform by an e-commerce entity on a digital & electronic network to act as a facilitator between buyer and seller (eg. Amazon, Flipkart).

  1. Regulations for FDI in ecommerce

The government is following a well-designed FDI policy in FDI. Following are the important provisions for FDI policy in ecommerce sector after the amendment on December 26th, 2018.

(A). Ecommerce entities can engage only in Business to Business (B2B) e-commerce and not in Business to Consumer (B2C) e-commerce.

(B). FDI holdings in ecommerce entities- 100% FDI in market place model whereas no FDI in inventory base model.

  1. i) 100% FDI under automatic route is permitted in marketplace model of e-commerce.
  2. ii) FDI is not permitted in inventory-based model of e-commerce.

Table: FDI regulation in ecommerce

Sector/Activity Equity/FDI Cap Entry Route
E-commerce activities (market place model) 100% Automatic

(C). Other conditions on FDI in the ecommerce sector.

The government has added some additional conditions to the existing ones on 26th of December 2018. New guidelines will take effect from February 1st, 2019.

The new guideline requires that a marketplace ecommerce firm can’t sell own products through its own platforms. Similarly, it can’t offer competition hurting cash backs. The market place firm should not exercise ownership or control over the inventories of other firms. Following are the conditions set by the reviewed FDI guidelines on ecommerce policy.

i) Digital & electronic network will include network of computers, television channels and any other internet application such as web pages, extranets, mobiles etc.

ii) Marketplace e-commerce entity will be permitted to enter into transactions with sellers registered on its platform on B2B basis.

iii) E-commerce marketplace may provide support services to sellers in respect of warehousing, logistics, order fulfillment, call centre, payment collection etc.

iv) E-commerce entity providing a marketplace will not exercise ownership or control over the inventories. Such an ownership or control over the inventory will make the business into inventory-based model.

Inventory of a vendor will be considered to be controlled by e-commerce marketplace firm if more than 25% of purchases of such vendor are from the marketplace entity or its group companies.

v) An entity having equity participation from e-commerce marketplace entity or its group companies or having control on its inventory will not be permitted to sell its products on the platform run by the marketplace entity.

vi) In marketplace model goods/services should clearly provide name, address and other contact details of the seller. Post sales, delivery of goods to the customers and customer satisfaction will be responsibility of the seller.

vii) In marketplace model, payments for sale may be facilitated by the e-commerce entity in conformity with the guidelines of the Reserve Bank of India.

viii) In marketplace model, any warrantee/ guarantee of goods and services sold will be responsibility of the seller.

ix) E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services. Services should be provided by e-commerce marketplace entity or other entities in which e-commerce marketplace entity has direct or indirect equity participation or common control, to vendors on the platform at arm’s length and in a fair and non-discriminatory manner. Cash back provided by group companies of marketplace entity to buyers shall be fair and non-discriminatory. Such cash backs will be deemed unfair and discriminatory.

x) e-commerce marketplace entity will not mandate any seller to sell any product exclusively on its platform only.

xi) e-commerce marketplace entity will be required to furnish a certificate along with a report of statutory auditor to Reserve Bank of India, confirming compliance of these guidelines, by 30th of September of every year.

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