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

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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