Centre Allows 100% FDI in eCommerce Marketplace Model

In a notification on March 29, the government of India declared that it would allow 100% foreign direct investment in marketplace eCommerce companies, which would also be allowed to provide services including warehousing, inventory and payments processing to merchants. However, the notification said that eCommerce companies would not be allowed to influence prices of the goods sold on their website which means the era of heavy discounting is over. Companies’ ‘influenced’ sales would now be under strict scrutiny, and a new guideline policy may soon emerge, pertaining to the rules of discounts and pricing.

Moreover, according to the policy, not more than 25% of goods sold can come from a single merchant.

Image Source: livemint

The ministry also maintained that foreign investment in inventory-based eCommerce companies, where goods sold are owned by the online retailer, would still not be allowed.

The notification, which is expected to redefine a section of the online retail industry in the country, was long awaited by eCommerce firms – both native-foreign backed companies such as Flipkart and Snapdeal, and subsidiaries of global giants such as Amazon India and Ebay, and several brick-and-mortar companies that use the marketplace model.

Commenting on the development, Vivek Gupta, a partner at BMR Advisors said, “An explicit position from the government on where it stood with reference to e-commerce has been long overdue. In that sense, it is good that some clarity has been provided.”

Similarly, Manu Agarwal – CEO & Founder, Naaptol, stated:  “The announcement is a welcome move and brings about clarity in operational guidelines that enables the marketplace operator to provide value-added services that can exponentially improve warehousing capability, logistic efficiency and market outreach.”

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