The Department of Industrial Policy and Promotion (DIPP) on 29 March 2016 notified Guidelines for 100 percent Foreign Direct Investment (FDI) in Business to Business (B2B) e-commerce.
The guidelines were issued under the Consolidated FDI Policy Circular 2015 that was notified by the DIPP of the Ministry of Commerce and Industry.
Highlights of the guidelines
• E-commerce means buying and selling of goods and services including digital products over digital and electronic network.
• 100 percent FDI under automatic route is permitted in marketplace model of e-commerce.
• FDI is not permitted in inventory based model of e-commerce.
• Marketplace e-commerce entity will be permitted to enter into transactions with sellers registered on its platform on B2B basis.
• E-commerce marketplaces may provide support services to sellers in respect of warehousing, logistics, order fulfillment, call centre, payment collection and other services.
• E-commerce entity providing marketplace will not exercise ownership over the inventory. Such an ownership over the inventory will render the business into inventory based model.
• An e-commerce entity will not permit more than 25 percent of the sales affected through its marketplace from one vendor to their group companies.
Marketplace model vs. Inventory model
• Marketplace based model of e-commerce means providing of an information technology platform by an e-commerce entity on a digital and electronic network to act a facilitator between buyer and seller.
• Inventory based model of e-commerce means e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly.
• Indian Scenario: In India, 100 percent FDI under automatic route is permitted in marketplace model, while no FDI is permitted in inventory based model of e-commerce.
• In marketplace model, any warrantee or guarantee of goods and services sold will be responsible of the seller.
• E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall remain level playing field.
As per the Consolidated FDI Policy Circular 2015, FDI up to 100 percent under automatic route is permitted in B2B e-commerce, while no FDI is permitted in Business to Consumer (B2C) e-commerce.
Though this consolidated policy was issued in May 2015 and led to large scale foreign investments in this sector there had been considerable vacuum with respect to operational guidelines of e-commerce platforms. This present guidelines fill that critical gap.
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What: Notified by the DIPP
When: 29 March 2016