FDI in online marketplace: some players may have to change model

Industry players and analysts see the notification on FDI in online marketplaces as providing clarity on the issue. But, certain conditions that have been imposed will mean that some players in the business will have to revamp their operational models.

These conditions include: a single vendor or group cannot contribute more than 25 per cent of the earnings of the marketplace; the FDI will not directly or indirectly influence the sale of price of goods and services; and it may provide support services to sellers with respect to warehousing, logistics, order fulfilment, call centre, payment collection and other services.

Transformative role Rajnish Wahi, Senior Vice-President, Corporate Affairs and Communication, Snapdeal, said the guidelines recognise the transformative role that e-commerce marketplaces will play in the Indian market.

“True marketplaces like Snapdeal have democratised commerce, providing millions of businesses a platform to sell beyond their geographic boundaries. It is a comprehensive announcement which will pave the way for accelerated growth of the sector in India,” he added.

Akash Gupt, Leader, Regulatory, PwC India, said: “This should put to rest the longstanding ambiguity over the FDI policy in the e-commerce sector. It also has laid down some operational guidelines that e-commerce marketplaces will need to meet, one of them being that not more than 25 per cent of sales will be contributed by one vendor or their group companies.”

Amarjeet Singh, Partner - Tax, KPMG in India, added that some of the existing players may need to revamp their operational structures to meet these norms. “Although some of the structures practised by existing players may require alteration, it will give much needed clarity to undertake business with certainty in the longer term. Needless to add, this will further facilitate foreign investment in this sector,” he said.

At the same time, the Centre has made it clear that FDI is not permitted in inventory-based e-commerce.

Vivek Gupta, Partner, BMR Advisors, said the fact that “this position has been stated after close to $10 billion have been committed to the sector, networks and businesses worth multiples of that in different business structures already exist on the ground, and legal challenges and ED enquiries are in various stages, mean the government had very little elbow room to really state a policy position.”

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