Almost 10 years after e-commerce started in a big way, the National Democratic Alliance government on Tuesday allowed 100 per cent foreign direct investment (FDI) in e-commerce marketplaces.
Though it has been introduced with a few riders, the reform comes just ahead of Chinese major Alibaba's proposed entry into the country. It also coincides with a recent markdown of valuation of e-commerce companies.
Some of the prominent e-commerce marketplace players in India are Flipkart, Snapdeal, ShopClues and Paytm - all funded by marquee foreign investors. American major Amazon, the biggest rival for Flipkart, too, entered India as a fully-owned online marketplace player two years ago.
The move is expected to benefit not just foreign multi-brand retail entities like Amazon and e-Bay, but also single-brand overseas chains like Adidas, Ikea and Nike. Existing Indian players like Snapdeal, Myntra, BigBasket and Flipkart can also now opt for foreign equity tie-ups.
Currently, global e-commerce giants like Amazon and eBay are operating online marketplaces in India, while domestic players like Flipkart and Snapdeal have foreign investments.
The guidelines, issued under Press Note 3 of the Department of Industrial Policy and Promotion (DIPP), came after numerous submissions from stakeholders that the current policy had no clarity on the issue of foreign equity in e-commerce where the sales were made directly to customers.
"In order to provide clarity to the extant policy, guidelines for FDI on e-commerce sector have been formulated," DIPP said.
It has also come out with the definition of categories like "e-commerce", "inventory-based model" and "marketplace model".
As per the current FDI policy, foreign capital of up to even 100 percent is allowed under the automatic route involving business-to-business e-commerce transactions. No such foreign equity was permitted in business-to-consumer e-commerce.
But now, a manufacturer is permitted to retail products made in the country through foreign-owned entities, even as single brand foreign retail chains that currently have brick and mortar stores can undertake direct sale to consumers through e-commerce.
As regards the Indian manufacturer, 70 percent of the value of products has to be made in-house, sourcing no more than 30 percent from other Indian manufacturers. But no inventory-based sale is allowed -- that is, such foreign retailers cannot stock products.
For such sales, the e-commerce model will include all digital and electronic platforms such as networked computers, television channels, mobile phones and extranets. The payment for such a sale will be in conformity with the guidelines of the Reserve Bank of India.
The Boston Consulting Group has estimated that India's retail market will touch $1 trillion by 2020 from $600 billion in 2015. Various other agencies have said that the e-retail component in that will reach $55 billion by 2018 from $14 billion now.
According to industry chamber Assocham, the e-commerce industry will be looking over the next 12 months to add to add around between 5-8 lakh people to the existing staff of around 3.5 lakh, thanks to the fast pace of growth in this segment.
This sector has attracted the maximum FDI in 2015. Enabling the marketplace operator to provide value add services like warehousing, delivery, payment processing will improve customer experience and market outreach for small and medium size suppliers.