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March 30, 2016
AFP/The Times of India
New Delhi, 30 March 2016
India
has set rules for foreign investment in online marketplaces, allowing
up to 100 percent overseas ownership and providing much-needed clarity
as billions of dollars pour into the country’s fast-growing e-commerce
sector.
The long-awaited rules permit full foreign ownership of
sites that connect online buyers to sellers — similar to the model
pioneered by Internet giant eBay.
However, foreign direct
investment in “inventory-based” sites that sell their own stock is
forbidden, the Department of Industrial Policy and Promotion said
Tuesday.
In practice, India’s e-retailers already considered
this to be the case, acting as technological platforms that connect
buyers and sellers rather than selling their own products.
Even
Amazon does not sell its own stock directly to shoppers in India.
Despite the regulatory fuzziness, domestic marketplace sites such as
Flipkart and Snapdeal have attracted billions of dollars in overseas
investment.
“This announcement
brings current business structures on the right side of the law,”
Devangshu Dutta, chief executive of Third Eyesight, a retail
consultancy in Delhi, told AFP.
While
the new rules will end much of the uncertainty, the government has also
imposed restrictions that may cause headaches for some online retailers.
Under the new rules, a single seller can only account for up to 25 percent of sales, the department said.
This
could cause problems for some of the big sites which, while technically
marketplaces, are reportedly home to a handful of super-sellers that
provide the lion’s share of their products.
Aggressive
discounting wars by India’s Internet retailers may also be under
threat, as the rules say they are not allowed to “directly or
indirectly influence the sale price of goods or services”.
“There
were no conditions (before) — now it looks like some of the players
may have to restructure the agreements with their sellers to be
compliant. It’s not very easy,” said Paresh Parekh, a tax partner in
retail and consumer products at EY.
Some retailers welcomed the
new rules, including Kunal Bahl. He founded Snapdeal, one of India’s
biggest Internet shopping sites.
“Great to see the guidelines
around 100% FDI in ecomm marketplaces. Glad the govt recognises and
supports an industry transforming India,” he tweeted.
(Published in The Times of India)
