Government Permits 100 Percent FDI in Online Marketplaces

After years of protectionist policies, India started opening up its retail sector in 2011 but so far had not laid down explicit rules governing foreign investment in the fast-growing e-commerce segment.

In a notification on Tuesday, India's commerce ministry said it would allow 100 percent foreign direct investment in marketplace e-commerce companies, which would also be allowed to provide services including warehousing, inventory and payments processing to merchants.

However, the notification said e-commerce companies would not be allowed to influence prices of the goods sold on their website, and that not more than 25 percent of goods sold can come from a single merchant.

The ministry also said foreign investment in inventory-based e-commerce companies, where goods sold are owned by the online retailer, would still not be allowed.

Global e-commerce giant Amazon Inc along with home grown but foreign-funded rivals Flipkart and Snapdeal have been operating marketplace e-commerce companies that do not own inventory, but instead act as platforms connecting buyers and sellers through support services and for a commission.

"An explicit position from the government on where it stood with reference to e-commerce has been long overdue. In that sense, it is good that some clarity has been provided," said Vivek Gupta, a partner at BMR Advisors.

Bank of America Merrill Lynch has forecast Indian e-commerce will surge to $220 billion (roughly Rs. 14,60,714 crores) in value of goods sold by 2025 from about $11 billion (roughly Rs. 73,035 crores) last year, outpacing growth in bricks and mortar retail.

© Thomson Reuters 2016