The government has given the green light to 100% FDI in the marketplace format of e-commerce retailing with a view to attract more foreign investments. As per the guidelines issued by the Department of Industrial Policy and Promotion (DIPP) on FDI in e-commerce, foreign direct investment (FDI) has not been allowed in inventory-based model of e-commerce.

• At present, global e-tail giants like Amazon and eBay are operating online marketplaces in India, while homegrown players like Flipkart and Snapdeal have foreign investments even as there were no clear FDI guidelines on various online retail models.
• To bring clarity, the DIPP has also come out with the definition of ‘e-commerce’, ‘inventory-based model’ and ‘marketplace model’.

What is Market Place Model?

• Marketplace model of e-commerce means 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.

What is Inventory Based Model?

• The inventory-based model of e-commerce means an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to consumers directly, according to the guidelines. Some of these e-commerce businesses may use a multi-carrier shipping company if they have to ship overseas so they are able to keep track of what they are selling, but this depends on how heir business is run and its reach.
• A marketplace entity will be permitted to enter into transactions with sellers registered on its platform on business-to-business basis, DIPP said.

It said that an e-commerce firm, however, will not be permitted to sell more than 25% of the sales affected through its marketplace from one vendor or their group companies. The government has already allowed 100% FDI in business-to-business (B2B) e-commerce.