FDI POLICY FOR E-COMMERCE ENTITIES

The consolidated FDI Policy Circular 2017 (“Policy”) lays down the regulation on foreign direct investment (“FDI”) in e-commerce, under the Press Note 2 (2018 series) (“Press Note”) which was released on December 26, 2018.

Previously, under the Policy

1. 100% FDI was permitted only in marketplace e-commerce entities (“Marketplace(s)”). If a Marketplace exercised ownership over inventory, it was to be deemed to be an inventory-based model which could not receive FDI.
2. More than 25% sales could not be generated from one vendor or a vendor’s group companies through Marketplace’s platform.
3. Marketplaces could not directly or indirectly influence the sale price of goods or services, and were required maintain a level playing field.

The changes introduced under the Press Note are as follows

1. In addition to ownership referred above, if a Marketplace exercises control over inventory, it will be deemed to be an inventory-based model and cannot receive FDI. A Marketplace will be deemed to control the inventory of any vendor listed on the Marketplace platform if more than 25% of the purchases of such a vendor are from the Marketplace or its group companies.
2. A vendor will not be allowed to sell on a Marketplace’s platform if the control of the vendor’s inventory is deemed to be with such Marketplace or its group companies as determined above. The previous restriction which did not permit more than 25% sales from one vendor or vendor group is now removed.
3. A Marketplace providing services to a vendor on terms which are not made available to other vendors in similar circumstances, will be deemed unfair and discriminatory. These services include, among other things, logistics, warehousing, advertising, marketing, payments and financing.

The new regulations that have been introduced under the Press Note are as follows

1. A vendor will not be allowed to sell on a Marketplace’s platform if such Marketplace or its group companies hold any stake or have equity participation in the vendor.
2. A Marketplace shall not mandate any vendor to sell any product exclusively on such Marketplace’s platform.
3. Marketplaces will have to provide a certificate, along with a report of a statutory auditor, to the RBI, confirming compliance with the guidelines under the Press Note, by the 30th of September every year, for the preceding financial year.