FDI in E-commerce

Background

As per the ‘Consolidated FDI Policy Circular 2015’ issued by the Department of Industrial Policy and Promotion (“DIPP”), FDI upto 100% under automatic route is permitted in Business to Business (“B2B”) e-commerce. However, no FDI was permitted in Business to Consumer (“B2C”) e-commerce.

The DIPP, through Press Note No. 3 (2016 series) dated 29th March 2016, has permitted, with immediate effect, FDI in B2C e-commerce subject to certain conditions.

The notification, which is expected to redefine a section of the online retail industry in the country, was long awaited by e-commerce firms – both Indian companies such as Flipkart and Snapdeal, and subsidiaries of global giants such as Amazon India and Ebay, and several brick-and-mortar companies that use the marketplace model.

This article will provide you with detailed conditions subject to which the FDI has been permitted in B2C e-commerce.

FDI permitted

1. 100% FDI under automatic route is permitted in marketplace model[1] of e-commerce[2].
2. FDI is not permitted in inventory based model of e-commerce[3].

For whom is permitted FDI in B2C e-commerce

FDI in B2C e-commerce is permitted in the following circumstances:

1. A manufacturer is permitted to sell its products manufactured in India, through e-commerce retail.
2. A single brand retail trading entity operating through brick and mortar stores, is permitted to undertake retail trading through e-commerce.
3. An Indian manufacturer is permitted to sell its own single brand products through e-commerce retail.Indian manufacturer would be the investee company, which is the owner of the Indian brand and which, in terms of value,

• Manufactures in India >= 70% of its products in house, and
• Sources <= 30% from Indian manufacturers.

 Conditions

100% FDI will be permitted in B2C e-commerce under the automatic rule, as above, subject to the following conditions:

1. Digital & electronic network to include network of computers, television channels and any other internet application used in automated manner such as web pages, extranets, mobiles etc.
2. Marketplace e-commerce entity permitted to enter into transactions with sellers registered on its platform on B2B basis.
3. E-commerce marketplace may provide support services to sellers in respect of
   • Warehousing,
   • Logistics,
   • Order fulfillment,
   • Call centre,
   • Payment collection and
   • Other services.
4. E-commerce entity, providing a marketplace, will not exercise ownership over the inventory. Such an ownership over the inventory will render the business into inventory based model.
5. Maximum sales by the e-commerce entity from one vendor or their group companies <= 25% of the total sales affected through its marketplace.
6. In marketplace model, goods/services made available for sale electronically on website should clearly provide name, address and other contact details of the seller.
7. Responsibility of the Seller
   • Post sales,
   • Delivery of goods to the customers
   • Customer satisfaction
   • Any warrantee/ guarantee of goods and services
8. 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.
9. E-commerce entities will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field.
10. Guidelines on cash and carry wholesale trading as given in the FDI Policy will apply on B2B e-commerce.

Subject to the FDI Policy on Services Sector and other applicable laws and regulations, sale of services through e-commerce will be under automatic route.

FDI in Insurance

1. Earlier, FDI in Insurance upto 26% was permitted under automatic route and beyond 26% upto 49% under Government route.
2. Through Notification No.FEMA.366/2016-RB dated 30th March, 2016, Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Fifth Amendment) Regulations, 2016 has been introduced.
3. Henceforth, FDI in Insurance upto 49% is allowed under Automatic Route, subject to approval/verification by the Insurance Regulatory and Development Authority of India.

[1] Marketplace based model of e-commerce–Means providing of an information technology platform by an e-commerce entity on a digital & electronic network to act as a facilitator between buyer and seller.

[2] E-commerce- Means buying and selling of goods and services including digital products over digital & electronic network.

[3] 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 the consumers directly.