100 pc FDI permitted in marketplace e-retailing with riders

Government today allowed 100 per cent FDI through automatic route in most of e-commerce retailing, a development that will boost domestic as well as foreign players like Flipkart and Amazon.
While the decision to allow 100 per cent FDI in market place e-retail -- where the company only provides platform for buyer and seller to connect -- will help domestic players like Flipkart and Snapdeal to attract more foreign investment, it will also open the doors for the foreign retailers like Alibaba to set shop easily.
Although the decision was widely welcomed by e-retailers, traders body CAIT strongly opposed the decision. IT industry body Nasscom said 25 per cent cap may prove to be "restrictive".

Snapdeal said the norms will provide clarity to India's fast growing e-commerce industry.
As per the guidelines issued by the Department of Industrial Policy and Promotion (DIPP) on FDI in e-commerce, foreign direct investment (FDI) has not been permitted in inventory-based model of e-commerce.
DIPP in a Press Note said that e-commerce marketplace may provide support services to sellers in respect of warehousing, logistics, order fulfilment, call centre, payment collection and other services.

However, such entities will not exercise ownership over the inventory. "Such an ownership over the inventory will render the business into inventory based model."
As per the norms, an e-commerce firm will not be permitted to sell more than 25 per cent of total sales from one vendor or its group companies.

"E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field," the guidelines said.
Tax consultancy firm PwC said the cap of 25 per cent on sales by a vendor on marketplace will ensure a broadbasing of vendors for a true marketplace.
To bring more clarity, the DIPP has also defined the term 'e-commerce', 'marketplace model', 'inventory based model' and 'e-commerce entity'.