DIPP
DIPP Clarification regarding Press Note 2 (2018)

DIPP Clarification on FDI policy on e-commerce: Press Note 2 (2018) applicable for entities that operate a marketplace for e-commerce

FDI policy on e-commerce, first pronounced through Press Note 2 of 2000, permitted 100% FDI in B2B e-commerce activities. With a view to clarify the already existing policy framework, after extensive stakeholder consultations, Press Note 3 was issued by DIPP in 2016. B2C e-commerce, that is multi-brand retail through inventory based model, has all along remained prohibited for FDI. Through the latest Press Note (2/2018), Government has only reiterated the policy provisions to ensure better implementation of the policy in letter and spirit.

As FDI is allowed only in B2B e-commerce, it was provided in Press Note 3/2016 that, an e-commerce entity providing marketplace will not, directly or indirectly, influence the sale price of goods or services, which also renders such business as an inventory based model. However, Government continued to receive complaints that certain marketplace platforms were violating the policy by influencing the price of products and indirectly engaging in inventory based model. An e-commerce platform operating an inventory based model does not only violate the FDI policy on e-commerce but also circumvents the FDI policy restrictions on multi-brand retail trading. Therefore, latest Press Note on FDI policy on e-commerce sector was needed to ensure that the rules are not circumvented.

Certain averments suggest that Press Note 3/2016 had covertly allowed multi-brand retail trading. Such a view is completely contrary to the specific provisions of Press Note 3/2016, which unambiguously provided that FDI is not permitted in inventory based model of e-commerce which amounts to multi-brand retail.

Fair, competitive and transparent business practices which are in compliance with law will better protect consumers in both short as well as medium and long term. The present policy does not impose any restriction on the nature of products which can be sold on the marketplace.

Press Note 2/2018 is applicable only to entities which operate a marketplace for e-commerce. FDI in other sectors continue to be governed by the specific provisions pertaining to them. For instance, there is no change in the FDI policy on food product retail trading, which permits 100% FDI under approval route, including through e-commerce, in respect of food products manufactured and/or produced in India.

 

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