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E-commerce retailing gets 100% FDI approval with riders

30 Mar 2016 Evaluate

Giving a boost to the foreign as well as local e-commerce retail players, the government has allowed 100 percent FDI through automatic route in the marketplace format of e-commerce retailing. Though, the approval has came with riders and many conditions to ensure that platform owners do not turn sellers. Some of the conditions introduced are like the sales cannot exceed 25 per cent for any vendor, marketplace players or their group companies cannot sell, guarantee and warranty must be the sole responsibilities of the sellers, and platform owners cannot influence pricing of products so that there's a level-playing field.

The Department of Industrial Policy and Promotion (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. DIPP also clarified that foreign direct investment (FDI) has not been permitted in inventory-based model of e-commerce. However, such entities will not exercise ownership over the inventory. Such an ownership over the inventory will render the business into inventory based model.

The government also notified new rules which could potentially end the discount wars, it has now prohibited any discounts to consumers by e-commerce companies, to give the offline retailers level playing field. The new policy also mandates such e-commerce companies to display contact details of the sellers online. The warranty/guarantee of products or services sold online will also be borne by the sellers, not the e-commerce company.

As per the press note of the DIPP, it has defined e-commerce as buying and selling of goods and services, including digital products over digital and electronic network, while a marketplace model is an information technology platform run by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller.

The e-commerce retailing sector has got an estimated $10 billion (Rs 65,000 crore) of foreign investment since it began in a big way 10 years ago. In 2015, around $5 billion (Rs 32,500 crore) of foreign funds were raised by e-commerce companies. The share of e-commerce in retail is expected to jump to 11% in 2019, while the share of physical, organized or modern retail is expected to shrink from present 17% to 13%.

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