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    Over the last two decades, rising internet and mobile phone penetration has changed the way we communicate and do business. E-commerce is relatively a novel concept. It is, at present, heavily leaning on the internet and mobile phone revolution to fundamentally alter the way businesses reach their customers.

     

    While in countries such as the US and China, e-commerce has taken significant strides to achieve sales of over 150 billion USD in revenue, the industry in India is, still at its infancy. However over the past few years, the sector has grown by almost 35% CAGR from 3.8 billion USD in 2009 to an estimated 12.6 billion USD in 20131

     

    Industry studies by IAMA2 Indicate that online travel dominates the e-commerce industry with an estimated 70% of the market share. However, e-retail in both its forms; online retail and market place, has become the fastest-growing segment, increasing its share from 10% in 2009 toan estimated 18% in 20133 . Calculations based on industry benchmarks estimate that the number of parcel check-outs in e-commerce portals exceeded 100 million in 2013. However, this share represents a miniscule proportion (less than 1%) of India’s total retail market, but is poised for continued growth in the coming years. If this robust growth continues over the next few years, the size of the e-retail industry is poised to be 10 to 20 billion USD by 2017-2020. This growth is expected to be led by increased consumer-led purchases in durables and electronics, apparels and accessories, besides traditional products such as books and audio-visuals.

     

    Now India is getting ready for introduction of Goods and Service Tax law (GST), it can further fuel the growth of e-commerce

     

    With the above background the author has made an attempt to bring the extant FEMA - Foreign Direct Investment Regulations for e-commerce industry

     

    Brief Background:

     

    Before 2006                       FDI was prohibited into Retail Business

     

    10thFebruary, 2006        FDI in cash-and-carry (wholesale) brought under automatic route.

     

    Earlier, it was allowed under approval route. 51% FDI was permitted under Government approval into SBRT

     

    April, 2010                          Cash and Carry Whole Sale Trade is permitted subject to 25% intra group entities

     

    sales restriction

     

     

    1Source: Internet and Mobile Association of India research report

     

    2Source: IAMAI report titled ‘e-Commerce Rhetoric, Reality and Opportunity’

     

    3Source: PwC analysis

     

     

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    SBS Wiki

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    July, 2010

    DIPP has issued second Discussion Paper FDI into MBRT

    7th December, 2011

    Union Cabinet Proposes 51% FDI in Multi-Brand Retail Trade

    10th January, 2012

    FDI into Single Brand Retail increased to 100% under Government route subject

     

    to stipulated Conditions

     

    14th September, 2012 The Government opens FDI into Multi-Brand Retail Trade (MBRT) upto 51% subject to stipulated conditions

     

    20th September, 2012 The Government clarifies the position that company having FDI cannot enter into e-commerce in both SBRT and MBRT

     

    January, 2014                    DIPP Releases a discussion paper on “E-Commerce in India, highlighting pros and

     

    cons of allowing FDI in the Sector”

     

    29th March, 2016           DIPP has issued Press Note No. 3/2016, whereby the definition of E-Commerce has been divided into Inventory based Model and Market based model.

     

    24th June, 2016                DIPP has issued Press Note No. 5/2016 for relaxing local sourcing norms for SBRT

     

    Extant FDI Regulations for FDI into E-Commerce:

     

    1. Relevant Definitions:

     

    • E-commerce- E-commerce means buying and selling of goods and services including digital products over digital & electronic network.

     

    • E-commerce entity- E-commerce entity means a company incorporated under the Companies Act, 1956 or the Companies Act, 2013 or a foreign company covered under section 2 (42) of the Companies Act, 2013 or an office, branch or agency in India as provided in section 2(v)(iii) of FEMA 1999, owned or controlled by a person resident outside India and conducting the e-commerce business.

     

    • Inventory based model of e-commerce- 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 the consumers directly.

     

    • Marketplace based model of e-commerce- Marketplace based model of e-commerce means providing of an information technology platform by an e-commerce entity on a digital & electronic network to act as a facilitator between buyer and seller.

     

     

     

     

     

     

     

     

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    FDI into eCommerce

     

     

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    1. Guidelines for Foreign Direct Investment on e-commerce sector:

     

    • 100% FDI under automatic route is permitted in marketplace model of e-commerce. (ii)FDI is not permitted in inventory based model of e-commerce.

     

    1. Other Conditions:

     

    • Digital & electronic network will include network of computers, television channels and any other internet application used in automated manner such as web pages, extranets, mobiles etc.

     

    • Marketplace e-commerce entity will be permitted to enter into transactions with sellers registered on its platform on B2B basis.

     

    (iii)E-commerce marketplace may provide support services to sellers in respect of warehousing, logistics, order fulfilment, call centre, payment collection and other services.

     

    (iv)E-commerce entity providing a marketplace will not exercise ownership over the inventory i.e. goods purported to be sold. Such an ownership over the inventory will render the business into inventory based model.

     

    • An e-commerce entity will not permit more than 25% of the sales affected through its marketplace from one vendor or their group companies.

     

    (vi)In marketplace model goods/services made available for sale electronically on website should clearly provide name, address and other contact details of the seller. Post sales, delivery of goods to the customers and customer satisfaction will be responsibility of the seller.

     

    • In marketplace model, payments for sale may be facilitated by the e-commerce entity in conformity with the guidelines of the Reserve Bank of India.

     

    (viii)In marketplace model, any warrantee/guarantee of goods and services sold will be responsibility of the seller.

     

    (ix)E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field.

     

    • Guidelines on cash and carry wholesale trading as given in para 5.2.15.1.2 of the Consolidated FDI Policy dated 7th June, 2016 will apply on B2B e-commerce.

     

     

     

     

     

     

     

     

     

     

     

     

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    FDI into eCommerce

     

     

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    1. Subject to the conditions of FDI policy on services sector and applicable laws/regulations, security and other conditionalties, sale of services through e-commerce will be under automatic route.

     

    Currently, eTravel comprises close to 70% of the total eCommerce market. eTailing, which comprises of online retail and online marketplaces, has become the fastest-growing segment in the larger market having grown at a CAGR of around 56% over 2009-2014. The size of the eTail market is pegged at 6 billion USD in 2015. Books, apparel and accessories and electronics are the largest selling products through eTailing, constituting around 80% of product distribution. 4

     

    The increasing use of smartphones, tablets and internet broadband and 3G/4G has led to developing a strong consumer base likely to increase further. This, combined with a larger number of homegrown eTail companies with their innovative business models has led to a robust eTail market in India rearing to expand at high speed.

     

    The ecommerce business may further give impetus once the GST Mechanism is put in place and the echo system is tuned to the new law.

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