ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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FDI Guidelines for e-Commerce

Cobweb of the e-Marketplace Model

While the e-commerce market has been liberalised progressively over the years, foreign direct investment in business to consumer e-commerce is permitted only under certain circumstances. This has resulted in innovative and convoluted e-marketplace models to overcome the restrictions. In this context, recent changes in the FDI policy in e-commerce are analysed with special focus on the marketplace segment and the possible impact of such changes on the existing players.

The author acknowledges an anonymous referee of this journal for helpful comments on an earlier draft of this article.

The Indian retail sector is going through a tumultuous transition phase. Competing forces like protecting interests of indigenous players and the liberalisation of the market to incite multibillion dollar investments, are constantly working in tandem. Under these circumstances, it is not easy for any policymaker to roll out a foolproof policy which can impress all stakeholders. Presence of loopholes in extant laws and ambiguity inviting conflicting interpretation are not necessarily attributable to inefficient policymaking. It is also a result of changing dynamics and demands of this evolving market.

In a bid to synchronise law with business, the Department of Industrial Policy and Promotion (DIPP) issued fresh foreign direct investment (FDI) guidelines in March 2016 through a press note (PN3/16) (DIPP 2016a) for the e-commerce sector which is at the helm of this transition. These guidelines have been subsumed in the Consolidated FDI Policy, 2016 (DIPP 2016b). They strive to provide clarity in the grey patches of the e-commerce sector, especially the marketplace models which have been alleged for operating quasi-inventory based model. The precedent shows that every time there have been changes in the FDI policy, the businessmen have come with a new cobweb of structure. This commentary briefly analyses the scenario post PN3/16, and the possible impact on the existing business structure of players running the marketplace models.

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