Single Brand Retail through e-commerce

Vide Press Note 12 of 2015 series, issued on 24th November, 2015, DIPP allowed only those single brand retail trading entities to undertake retail trading through e-commerce, which operate through brick and mortar stores in India. The object of the press note was to bring more investments and also the high quality goods in India with the aim to growth and technological development of India. However the press note fails to define the target public for sale of the such goods through e-commerce and also defining region and coverage of the e-commerce sale considering the opening of the brick and mortar store, which leads to the interpretation of opening of one brick and mortar store in India and engaging into B2C e-commerce in the entire country thereby defeating the very purpose of the press note for brining in investments into India since the e-commerce model does not involve big investments. Thus as a result DIPP started receiving number of queries with respect to such a huge relaxation of doing e-commerce business in India through single brand retail. DIPP realizing the error in the earlier press note allowing the e-commerce business has now came up with Press Note No. 3 (2016 Series); dated 29th March, 2016 and clear guidelines on FDI in B2C e-commerce sector with respect to Marketplace e-commerce model and Inventory based e-commerce model, by which it prohibited the FDI into inventory based e-commerce B2C model. The same have been detailed herein below:

FDI in marketplace model of e-commerce

The Government allowed 100% FDI in B2C e-commerce marketplace model, which has been defined to mean providing of an IT platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller. For undertaking FDI in e-commerce marketplace, the following conditions shall be satisfied:

• An e-commerce entity will not be permitted to sell more than 25% of the sales affected through its marketplace from one vendor or their group companies.
• Guidelines on cash and carry wholesale trade under the FDI Policy (as discussed above), shall apply mutatis mutandis to B2B e-commerce also.
• Contact details of the sellers are to be displayed online by the e-commerce entities.
• E-commerce entity providing a marketplace will not exercise ownership over the goods to be sold.
• An e-commerce marketplace entity will be permitted to enter into transactions with sellers registered on its platform on B2B basis.
• Support services to the sellers, like warehousing, logistics, call center etc., may also be provided by the e-commerce entities.
• The warranty/guarantee of products or services sold online will be borne by the sellers, not the e-commerce entity. In addition, the seller alone shall be responsible for delivery of goods and satisfaction of customer.
• Payments for sale shall be facilitated by the e-commerce entity in conformity with the RBI guidelines.
• The price of goods or services shall not be, directly or indirectly, influenced by the e-commerce entities providing marketplace.
  If any of the above conditions are not satisfied then approval of the FIPB shall be obtained.

FDI in inventory based model of e-commerce

It has been specifically provided that FDI is not permitted in inventory based model of e-commerce, which has been defined to mean an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to consumers directly. Thus, FDI in B2C e-commerce has been specifically restricted in case goods are owned by the e-commerce entity.

However, on review of the above there still a scope of Inventory based e-commerce B2C model to the extent of 25% of the goods imported from outside India under single brand retail by sale through whole sale trade model to a group company in India, wherein not more than 49% investment is held in the importing company, which again keeps the investee company out of the purview of the downstream investment and thus not falling under the prohibition of B2C e-commerce; 25% through Platform based e-commerce B2C model through sale from any of the group company and the balance of 50% e-commerce B2C sale can be done through the already existing franchise model.