100% FDI in e-commerce: promoting growth with governance

Press Note 3 of 2016 issued by DIPP is a masterstroke of regulating a e-commerce model and but making way for many more business models not only for e-commerce entities but also for Indian Startups , Manufacturers and offline retailers wherein the society is ultimate beneficiary. This is a welcome step, not only because it is going to facilitate foreign investment in a big way but also because it has clarified FDI regulation on e-commerce sector. It provides guidelines for the two business models - marketplace based model and inventory based. 

Prior to this, the absence of clarity in rules and regulation in the e-commerce, resulted in unintentional/intentional malpractices.  The detailed and lucid press note issued by the government, puts all the loopholes used for advantage by ambitious e-commerce players to rest. It will bring in compliance to the whole structure of e-commerce and promote growth that will be endorsed with good governance across this sector. 

The quantum of FDI in e-commerce is huge and so is its future resulting potential.  I believe this has motivated the government to adopt a phased approach to regulate the e-commerce companies and the recent development is one of the phases.  This regulatory note lays down various rules and regulations for all the business models of e-commerce companies.   

•    Defines e-commerce, e-commerce entities, models of e-commerce - marketplace model and inventory based model. 

•    Upto 100% FDI through automatic route is permitted to Business to Business (B2B) e-commerce that is the marketplace model. 

•    The marketplace will be the facilitator that provides support services that are e-commerce platform, logistics, call center, warehouse, payment collection, customer care and other services but can’t hold or own inventory. 

•    No FDI for Business to Consumer (B2C) that is inventory based model.    

•    FDI is permitted to B2C in case of a manufacturer who manufactures the products in India and sells through a single brand. 

•    Put rest to discount war and resultant malpractices as e-commerce entity can’t influence the prices in any manner; 

•    Details of sellers to be mentioned as also prescribed under Legal Metrology Act for pre-packed goods. 

•    One Vendor can’t contribute more than 25% of a e-commerce entity; and 

•    Reinforces that all the payments and transactions happen in conformation to payment gateway and payment settlement guidelines laid down by RBI. 

Read more at :- Money Control