APR 27, 2016

FEMA-Single Brand Retail through e-commerce

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As per the extant FDI Policy 100% FDI is permitted in B2B e-commerce. However, no specific guidelines had been laid down for FDI in B2C e-commerce. Thus, DIPP vide its Press Note No. 3 (2016 Series); dated 29th March, 2016, prescribed clear guidelines on FDI in B2C e-commerce sector with respect to marketplace model and inventory based model of e-commerce. The same have been detailed herein below:

FDI in marketplace model of e-commerce

The Government allowed 100% FDI in B2C e-commerce marketplace model, which has been defined to mean providing of an IT platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller. For undertaking FDI in e-commerce marketplace, the following conditions shall be satisfied:

  • An e-commerce entity will not be permitted to sell more than 25% of the sales affected through its marketplace from one vendor or their group companies.
  • Guidelines on cash and carry wholesale trade under the FDI Policy (as discussed above), shall apply mutatis mutandis to B2B e-commerce also.
  • Contact details of the sellers are to be displayed online by the e-commerce entities.
  • E-commerce entity providing a marketplace will not exercise ownership over the goods to be sold.
  • An e-commerce marketplace entity will be permitted to enter into transactions with sellers registered on its platform on B2B basis.
  • Support services to the sellers, like warehousing, logistics, call center etc., may also be provided by the e-commerce entities.
  • The warranty/guarantee of products or services sold online will be borne by the sellers, not the e-commerce entity. In addition, the seller alone shall be responsible for delivery of goods and satisfaction of customer.
  • Payments for sale shall be facilitated by the e-commerce entity in conformity with the RBI guidelines.
  • The price of goods or services shall not be, directly or indirectly, influenced by the e-commerce entities providing marketplace.
    If any of the above conditions are not satisfied then approval of the FIPB shall be obtained.

FDI in inventory based model of e-commerce

It has been specifically provided that FDI is not permitted in inventory based model of e-commerce, which has been defined to mean an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to consumers directly. Thus, FDI in B2C e-commerce has been specifically restricted in case goods are owned by the e-commerce entity.

As informed, ABC Shopping Ltd. is desirous of conducting B2C (retail) trading in India via e-commerce platform, of the products purchased by it from ABC India Ltd. Since, ABC Shopping would be said to be the owner of the products, it cannot sell the products in India via e-commerce platform as in light of the said Press Note 3, such a model would qualify as inventory based model of e-commerce. Accordingly, ABC India may sell the products in India on B2B basis through physical stores as well as via e-commerce, as 100%. However, the products to retail customers (B2C) may only be sold via physical stores/brick and mortar stores.