NEW DELHI — In a new ruling meant to provide clarity and attract global investors, the Indian government said Tuesday that 100 percent foreign direct investment would be allowed in e-commerce marketplace sites such as eBay, Amazon and Flipkart.
Under the marketplace approach, an e-tailer can serve to connect different sellers with customers. However, they are not allowed to have inventory of their own. The largest e-tailers in India, where e-commerce has been skyrocketing, have operated under that model.
Since these companies are already functioning in India, industry analysts were scrambling to interpret the Indian government’s new mandate.
“So far there was no clarity on the rules,” Mukesh Jain, an independent retail analyst, said. “Now there are clear definitions of what e-commerce is, what a marketplace model is and what an inventory-based model is.”
For example, the formal definition of marketplace model of e-commerce is “providing information technology platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller,” according to the government.
With the changed rules, a manufacturer will be allowed to retail its products made in the country through foreign-owned entities.
However, Jain cautioned that there were other barriers — particularly the cap set for discounts, which have been a game changer for online portals. The new rules also stipulate that an e-commerce site will not allow more than 25 percent of the sales through its marketplace to come from one vendor or its group companies.
“The definitions in the notification will prevent marketplaces from behaving like pseudo-retailers,” the Retailers Association of India said.
While things are expected to become easier for global retailers to enter the market, trade associations in India, such as the National Association of Software and Services Companies, reacted quickly, calling the 25 percent cap on sales from a single vendor or group entities “restrictive.”
The Confederation of All India Traders (CAIT), was more vocal, saying that this move will provide a “back-door entry to global players in multibrand retail.”
Although India allowed 100 percent FDI in single-brand retailing in 2011, followed by 51 percent FDI in multibrand retail, Prime Minister Narendra Moti’s government has been strongly opposed to 100 percent FDI in multibrand retailing.
E-commerce in India is expected to be worth $38 billion by 2016, according to The Associated Chambers of Commerce and Industry of India. The growth is expected to be dramatic: Goldman Sachs & Co. predicts it to be a $100 billion industry by 2020.