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Electronic Commerce or e-commerce means buying and selling of goods and services including digital products over digital and electronic networks like networked computers, television channels, mobiles or any other internet based application used in an automated manner such as extranets, etc.  In other words, it refers to online, internet-based selling and buying using a digital instrument like, computer or mobile or tablet.

The above definition has been adopted by the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, Government of India in respect of allowing foreign direct investment (FDI) in such companies. The same was notified on 29 March 2016 (Press Note No. 3).


In what context e-commerce is permitted in India?
E-commerce may be carried out for both wholesale trade[1] or for retail trade (sale towards final consumption). It can be either Business to Business (B2B) trading[2] or Business to Consumers (B2C) trading. There is no restriction on conducting e-commerce per se in India. However, certain restrictions exist, if e-commerce is being done by companies receiving FDI.

In India, 100% FDI under automatic route[3] is allowed in Business to Business e-commerce since 2000[4]. When it comes to business to consumers (B2C) trade or retail trade, a distinction is made between single brand retail (selling products of a single brand) and multi-brand retail with respect to permission for FDI and e-commerce[5].

In the business to consumers (B2C) multi-brand retail segment, if the trade is happening on ‘marketplaces’, as defined in the subsequent section below, 100% FDI under automatic route is permitted in the entity providing that marketplace. Further, FDI is permitted in Business to Consumers e-commerce retail segment In India, only in the following circumstances.

Thus, e-commerce mode with FDI is permitted for:

E-commerce, would not be permissible, for brick and Mortar companies with FDI, engaged in the activity of multi-brand retail trading.


Types of e-commerce in the B2C multi-brand retail trading, as recognised in India:

FDI is not permitted in inventory based model of e-commerce.


Such marketplaces can provide support services to sellers in respect of warehousing logistics, order fulfilment, call center services, payment collection and other services. However, they cannot exercise ownership over the inventory of goods purported to be sold. For the same reason, post sales on the e-commerce site, ultimate delivery of goods to the customers, ensuring his satisfaction, implementation of any warrantee / guarantee etc. will be the responsibility of the seller. If there is any ownership over the inventory, it will render the business into inventory based model of e-commerce. To ensure that the marketplace does not own the inventory, it is stipulated that name, address and contact details of the sellers should be clearly made available while displaying the nature and price of these goods on the online platform.

Further, e-commerce entities/marketplace provider cannot directly or indirectly influence the sale price of goods and services and has to maintain the level playing field with other brick and mortar retailers in the country. That is, the marketplace provider cannot offer any discount on their own unless the original seller is giving it.

A marketplace provider can enter into transactions with sellers registered on its platform on a business to business (B2B) basis. However, it cannot source more than 25% of the sales affected on its platform from a single vendor or their group companies. This is to ensure that a variety of sellers are available on the order matching platform.

Payments effected on the marketplace have to conform to the RBI guidelines issued in this regard.

Subject to the above conditions, 100% FDI under automatic route is allowed in this model of e-commerce.

1. Wholesale trade means sales for the purpose of trade, business and profession, as opposed to sales for the purpose of personal consumption. Wholesale trading, would mean sale of goods/merchandise to retailers, industrial, commercial, institutional or other professional business users or to other wholesalers and related subordinated service providers. The yardstick to determine whether the sale is wholesale or not would be the type of customers to whom the sale is made and not the size and volume of sales.

2. Business to business (B To B or B2B) refers to a transaction that exists between businesses, such as those involving a manufacturer and wholesaler, or a wholesaler and a retailer. Business to business refers to business that is conducted between companies, rather than between a company and individual consumers.

3. That means prior approval either of the Government or the Reserve Bank of India is not required

4. 100% FDI was allowed in cash and carry wholesale trading since 1997. In 2000 (11 Feb 2000 press note No. 2), India allowed 100% FDI in B2B ecommerce subject to the condition that such companies would divest 26% of their equity in favour of the Indian public in five years, if these companies are listed in other parts of the world.

5. The Government decided to allow FDI up to 51%, with prior Government approval, in retail trade of ‘Single Brand’ products in 2006 (Press Note No. 3 dated 10 February 2006). Later, government removed this 51% cap on FDI in January 2012 (Press Note No. 1 dated 10 January 2012), and opened the single-brand retail market fully to foreign investors by permitting 100 % foreign investment under government approval route subject to certain conditions like mandatory sourcing of 30% of the products from Indian small industries in case FDI is beyond 51% etc..  In August 2013 (Press Note No.6) upto 49% of FDI was made permissible under the automatic route and certain conditions were clarified /modified further.
FDI, up to 51%, under the Government route, in Multi-Brand Retail Trading was permitted in September 2012, subject to many specified conditions and excluding certain sectors (Press Note No. 5/2012 dated 20 September 2012). Some of these conditions were fine tuned in August 2013 (press Note No. 5 dated 22 August 2013).

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