The government on Tuesday allowed 100 per cent FDI through automatic route in the marketplace format of e-commerce retailing, a development that will give a boost to foreign firms like Amazon and Ebay as well as domestic players such as Flipkart and Snapdeal.
As per the guidelines issued by the Department of Industrial Policy and Promotion (DIPP) on FDI in e-commerce, foreign direct investment (FDI) has not been permitted in inventory-based model of e-commerce.
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.
However, such entities will not exercise ownership over the inventory. "Such an ownership over the inventory will render the business into inventory based model."
As per the norms, 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," the guidelines said.
Commenting on the move, Snapdeal said the norms will provide clarity to India's fast growing e-commerce industry.
"These guidelines recognise the transformative role that e-commerce marketplaces will play in the Indian market. It is a comprehensive announcement which will pave the way for accelerated growth of the sector in India," it said.
Tax consultancy firm PwC said the cap of 25 per cent on sales by a vendor on marketplace will ensure a broadbasing of vendors for a true marketplace.
"This may require some of the operators to go on drawing board to comply with the conditions," Akash Gupt, Partner and Leader Regulatory, PwC, said.
"In order to provide clarity to the extant policy, guidelines for FDI on e-commerce sector have been formulated," DIPP said.
The ecommerce industry has grown rapidly in India logging a growth rate of over 60 per cent. Studies have pegged the size of the industry at around USD 38 billion by 2016 and it is expected to touch USD 50 billion mark in 2020.