The government clarified that it would allow 100% foreign direct investment (FDI) in business-to-business. ecommerce under the automatic route. There is nothing new in the Indian governments policy on FDI in ecommerce. Just a clarification of what was always the case on the marketplace model of ecommerce.
More importantly, the Department of Industrial Policy and Promotion (DIPP) has come out with a number of definitions for clearing up with e-commerce is. Secretary of the DIPP, Amitabh Kant, in a tweet said that the definitions would help in taxation as several states would charge the ecommerce companies rather than the sellers.
@nixxin earlier market place was not defined. Several States were levying Taxes on E-Commerce Cos instead of doing so on sellers.
— Amitabh Kant (@amitabhk87) March 29, 2016
Here’s what the DIPP defines ecommerce as:
Ecommerce – Ecommerce means the buying and selling of goods and services including digital products over digital and electronic network.
Marketplace based model of ecommerce – Providing of an information technology platform by an ecommerce entity on a digital ad electronic entity which can act as a facilitator between buyer and seller.
Inventory based model of ecommerce – An ecommerce activity where the inventory of goods and services is owned by e-commerce entity and sold directly to consumers. FDI is not permitted in the inventory based model of ecommerce.
-Marketplace ecommerce entity will be permitted into transactions with sellers registered on its platform on a B2B basis. However, FDI in B2C ecommerce is permitted in the the following circumstances:
i) A manufacturer is permitted to sell its products manufactured in India through ecommerce retail.
ii) A single brand retail entity is operating through brick and mortar stores, is permitted to undertake retail trade through ecommerce
iii) An Indian manufacturer would be the investee company where it is the owner of the Indian brand. The rules also add that the manufacturer must create 70% of the goods in-house and 30% may be sourced from Indian manufacturers.
– An ecommerce entity will not permit more than 25% of the sales affected through its marketplace from one vendor or their group companies.
– Ecommerce entity may provide support services to sellers in respect of warehousing, logistics, order fulfillment, call centre, payment collection and other services.
– In marketplace model, any guarantee and warranty of the goods sold will be the responsibility of the seller. This should clear up matters when it comes to the liability of goods sold on ecommerce sites. More on that here, here and here.
– Ecommerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and will maintain a level playing field. This could translate to the government clamping down on heavy discounting. The nuances of whether cashbacks constitute as discounts are discussed more in detail here.