E commerce companies hopeful that the government would re-look at the foreign direct investment policy so that they can accept foreign investments are in for bad news.
The government, which released the consolidated FDI policy on Friday, re-iterated that e-commerce companies can not retail directly to consumers. However, they can engage in b2b retailing.
The policy said
“Retail trading, in any form, by means of e-commerce, would not be permissible, for companies with FDI, engaged in the activity of multi-brand retail trading,” the circular said.
E-commerce companies like Flipkart which raised millions of dollars from foreign investors and multinational giants like Amazon have been waiting for a favorable policy environment for long.
“E-commerce activities refer to the activity of buying and selling by a company through the ecommerce platform. Such companies would engage only in business to business ecommerce and not in retail trading, inter-alia implying that existing restrictions on FDI in domestic trading would be applicable to e-commerce as well,” the government circular said.
To comply with the government regulations, most ecommerce companies have been pivoting to a marketplace model where they do not keep inventory and sell on behalf of merchants listed on their website. On Saturday, Flipkart, the posterboy of Indian ecommerce launched their marketplace. Companies like Snapdeal and many others have already launched marketplaces.
FDI in Venture Capital
Foreign venture capital investors can contribute up to 100% of capital of an Indian venture capital undertaking, the government said. Such investments can be made under tha automatic route. However, the investments will be subject to FEMA regulations and existing FDI policy including sectoral caps, said the circular.
Read the policy in full here.