Wednesday, February 10, 2016

FDI in Marketplace Model – New Proposal for E-commerce

[The following guest post is contributed by Ananya Banerjee, a 5th Year Student of University of Calcutta, Department of Law]

Press Trust of India has reported on February 9, 2016 that the government is considering permitting 100% FDI in the marketplace model of e-commerce to attract more foreign investments. It was already expected that the Government would soon come up with a proper definition of ‘marketplace’ to effectively regulate the companies carrying on e-commerce through this model.

With several regulations addressing the marketplace, the point of confusion was as to which type of business would constitute a marketplace. In addition to that, the existing regulations do not adequately cover the ever evolving and fast growing e-commerce sector of India. Although, the Consolidated FDI Policy of 2015, as amended from time to time, does not allow foreign investment in e-commerce, the industry giants like Flipkart, Snapdeal, Amazon etc. have found a way to avoid this hurdle and have designed their business structure in a manner similar to that of Alibaba, the famous e-commerce company of China which provides an online marketplace for sellers.

Presently, there are no restrictions on FDI in such a marketplace model as the FDI Policy does not even include anything relating specifically to the marketplace model, although it allows 100% FDI in B2B e-commerce activities under the automatic route. In effect, these companies do not provide marketplace only, they also provide inventory services, delivery services and other related services, in a way that carefully avoids direct B2C e-commerce, yet enables these companies to attract foreign investment.

The Union Government is taking several policy reviews to change the economic scenario of the country, and in addition to policies like ‘make in India’, ‘Startup India’ the Government has also liberalized the FDI Policy to a great extent. With a view to further extending the effect of liberalization and to attracting more foreign investment, the Government is now considering allowing 100% FDI in marketplace model. This step by the Government only means that it will not only come up with regulations relating to e-commerce, but it would also define the term ‘marketplace’ so that the e-commerce companies are aptly regulated by these laws.
The effect and extent of the proposed review would be clear only when the proposal by the Department of Industrial Policy and Promotions is passed.

- Ananya Banerjee


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