The Department of Industrial Policy and Promotion r(DIPP) eleased today a Press Note on the Guidelines for Foreign Direct Investment (FDI) in e-commerce that opens up three windows to 100% FDI companies operating in the field of B2C e-commerce in India, something completely banned by the Consolidated FDI Policy Circular 2015.
The Press Note points that 100% FDI through the automatic route (no need for autorisation) is allowed by the Circular released in 2015 in the case of B2B e-commerce, but completely banned for B2C e-commerce.
Despite the ban on B2C e-commerce funded 100% by foreign companies the DIPP clarifies in the document that the prohibition does not apply to three exceptions.
Anyway the document also makes clear that 100% FDI investment through the automatic route is just allowed on B2C e-commerce marketpalces never in inventory based sites.
This interpretation opens up the door to the entry of Alibaba Group’s B2C marketplaces as well as e-the B2B e-commerce sites owned by the Chinese company.
It also legitimates almost all B2C foreign marketplaces already serving indian consumers from abroad or already operating in the country, such as Flipkart, Snapdeal and Amazon.
Some analysts see in this more open interpretation of the Consolidated FDI Policy Circular 2015 some interest by the Indian Governent on taxing these transactions, given that e-commerce is expected to grow from the current 2% share in total retail market to the 11% by 2019, while modern retail is expected to reduce its share from the 17% to the 13%. At least this says a report recently published by the Retailers Association of India and carried out by Knight Frank India.
The B2C exceptions
The first exception is that any manufacturer operating in india is allowed to sell its own products through e-retail in India.
The second exception covers single brand retail entities operating through brick and mortar stores. these can sell their products in India through e-commerce, even if they are 100% owned by foreign investors and so does the e-commerce company.
The third exception covers Indian manufacturers, who are permitted to sell their single branded products through e-commerce retail sites. The case covered involves that the Indian manufacturer is the investee company, which is the owner of the Indian brand. The investee company must manufacture in India at least a 70% of its products in terms of value and source a 30% of their needs from Indian manufacturers.
Some definitions
The document released by the DIPP also defines what the terms e-commerce a d e-commerce entity , marketplace and inventory based site mean under the Consolidated FDI Policy Circular 2015.
Inventory based model of e-commerce means an e-commerce activity where inventory of goods and services is owned by the e-commerce entity and is sold to the consumers directly.
Marketplace based model of e-commerce means providing of an information technology platform by an e-commerce entity on a digital & electronic network to act as facilitator between buyer and seller.
e-comerce refers to “buying and selling of goods and services including digital products over the digital & electronic network”. And e-commerce entity is a company incorporated under the Companies Act 1956 or the Companies Act 2013 or a foreign company covered under section 2(42) of the Companies Act 2013 . e-commerce entity also means branch or agency in India as provided in section 2 (v) (iii) of FEMA 1999, which is owned or controlled by a person who resides outside India and conducts the e-commerce business.
To read the whole document on the interpretation of the 2015 Consolidated FDI Policy Circular click here
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