Indian govt issues FDI guidelines for ecommerce companies; Blow to Amazon and Flipkart

Ecommerce sales (Image credit: Wikimedia)
Ecommerce sales (Image credit: Wikimedia)

Govt has clarified on FDI issues for ecommerce companies and here is a quick summary:

  • 100% FDI under automatic route is permitted in marketplace model of e-commerce.
  • FDI is not permitted in inventory based model of e-commerce.

Marketplace vs Inventory Model

E-commerce entity providing a marketplace will not exercise ownership or control over the inventory i.e. goods purported to be sold. Such an ownership or control over the inventory will render the business into inventory based model. Inventory of a vendor will be deemed to be controlled by e-commerce marketplace entity if more than 25% of purchases of such vendor are from the marketplace entity or its group companies.

The ‘Group’ Company Story

An entity having equity participation by e-commerce marketplace entity or its group companies, or having control on its inventory by e-commerce marketplace entity or its group companies, will not be permitted to sell its products on the platform run by such marketplace entity.

A Call for Level playing field

E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field. Cash back provided by group companies of marketplace entity to buyers shall be fair and non-discriminatory (more).

No-exclusivity? e-commerce marketplace entity will not mandate any seller to sell any product exclusively on its platform only.

In marketplace model goods/services made available for sale electronically on website should clearly provide name, address and other contact details of the seller. Post sales, delivery of goods to the customers and customer satisfaction will be responsibility of the seller.

These guidelines will take effect from 01 February, 2019.

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