India Announces Guidelines For Online Market Places Allowing 100% FDI

Indian Department of Industrial Policy and Promotion (DIPP) has announced on Tuesday that online market places can get 100% foreign direct investment (FDI). The announcement appears as part of new set of guidelines that aims at clearly defining overseas investment rules in the booming ecommerce sector of India.

Indian online retail portals such as Flipkart and Snapdeal have attained attraction drawing valuations. The ecommerce portals have structured themselves as aggregators offering marketplaces for people to choose and buy products of companies displaying goods for sale through these gateways. In addition to local ecommerce vendors, global retailers like Amazon and eBay have also started operations in India through their subsidiaries, reports Hindustan Times.

India has started opening up its retail sector in 2011 after years of conservative policies. But the country hasn't laid down explicit rules regulating FDI in the fastest growing sector. According to the commerce ministry notification issued on Tuesday, FDI may also be used in providing services including warehousing, inventory and payment processing to the merchants, reports Reuters.

However, the notification doesn't allow the ecommerce companies in influencing prices of the goods sold through their websites. Furthermore, it restricts the online marketplaces to procure not more than 25% of the goods sold from a single merchant.

The DIPP notification also furnishes definition of 'ecommerce', 'inventory based model' and 'market place model' to bring clarity in this sector. The market place model represents an IT platform by an ecommerce entity on a digital and electronic network.

The model acts as a facilitator between buyer and seller. Meanwhile, the inventory based model signifies ecommerce activity centering inventory and services owned by ecommerce entity. The model allows selling of goods direct to the consumers, clarifies India TV citing the new guideline as the source.

Global giant Amazon and foreign funded local vendors like Flipkart and Snapdeal do not own inventory. Instead, they act as platforms connecting buyers and sellers through support services for a commission and hence will have to follow the market place model, according to the new guideline.

An explicit position from the government formulating ecommerce has long been overdue in India. Hence, circulation of guidelines including specific clarification has been welcomed by Vivek Gupta, a partner at BMR Advisors. Merrill Lynch from Bank of America has forecast that Indian ecommerce business will grow to $220 billion by 2025 from about $11 billion of sales revenue recorded last year.

Indian local ecommerce vendors Flipkart and Snapdeal have received foreign funds despite absence of guidelines on foreign direct investment in this sector. Following a widespread call from the industry insiders, Indian foreign ministry on Tuesday has issued a new guideline for regulating the fastest growing sector. The booming industry is expected to grow up to $220 billion by 2025 in terms of sales revenue.