100% FDI in online retail: New rules bar discounts by marketplaces

March 29, 2016

NEW DELHI: The Government has allowed 100% foreign direct investment (FDI) in online retail of goods and services under the Western model of ‘marketplace’. However, there will be a ban on discounts offered by the online platforms which can push up online prices. The warranty of products or services sold online will be fulfilled by the sellers.

The marketplaces will not have ownership over the inventory. There will also be a cap of 25% on total sales from a company or a vendor on an online marketplace.

The Department of Industrial Policy and Promotion (DIPP) said FDI has not been permitted in inventory-based model of e-commerce.

The marketplace model of e-commerce is an “information technology platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller.”

The e-commerce marketplace can provide support services to sellers in warehousing and logistics but they will not be allowed to exercise ownership over the inventory. “Such an ownership over the inventory will render the business into inventory-based model,” the DIPP said.

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,” it added. The existing players will be affected by this restriction. The cap of 25% can broadbase the e- commerce.

The Retailers Association of India has said the norms will stop marketplaces from behaving like “pseudo retailers.” India has till now allowed 100% foreign investment in business-to-business (B2B) e-commerce but not in retail e- commerce of business-to-consumer (B2C).

Marketplaces are platforms between sellers and buyers. Flipkart and Snapdeal are two existing e-commerce firms currently doing online retail. The e-commerce quantum in retail is expected to spike from 2% in 2014 to 11% in 2019. The FDI will be in billions of dollars.

Meanwhile, following the announcement, the retailers have petitioned Commerce Minister Nirmala Sitharaman against e-tailers violating the FDI norms, according to BS Nagesh, chief of the Retailers Association of India.

- RM Nair

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