100% FDI in Ecommerce Marketplace Model

The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

Akhil Verma, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur

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The e-commerce market in India has seen unprecedented growth over the past few years. This growth story is largely due to substantial foreign direct investment (FDI) made in the overall ecosystem.However, due to policy uncertainty, most entrepreneurs have been hoping for a clear FDI policy by the government.

According to recently issued guidelines by the government:

  • 100% FDI under the automatic route is permitted in the marketplace model of e-commerce, while the same is not permitted in the inventory-based model.
  • An e-commerce entity may provide logistic, warehousing, order fulfillment, call centre, payment collection and other services.
  • An e-commerce firm cannot have more than 25% of its total sales from one vendor or its group companies.
  • The seller shall be responsible for post sales, warranty and guarantee of goods sold by it.
  • The e-commerce entity will not directly or indirectly affect the sale price of goods or services while maintaining a level playing field.

The move brings in clarity in a sector where there was none. This will allow more FDI into the country to provide value added services & best global practices. The demand for warehousing, logistics & real estate is also expected to increase. However, it would now be difficult for online companies to give huge discounts to customers. Disallowing a single vendor or its group of companies from selling more than 25% of total sales of the platform could hurt large suppliers such as Cloudtail or WS Retail but splitting these up to show different ownership may not be too difficult either.

Overall, the government has given good guidance and clarity to the business model & this will be the foundation for all other regulations and laws.

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