The government Tuesday permitted 100 percent foreign direct investment (FDI) in e-commerce under the marketplace format. The same won't apply to the inventory-based model, the government reiterated.
In a marketplace format, an e-commerce company facilitates transactions between buyers and sellers, whereas in the inventory-based model, it owns the goods and sells them to customers directly.
The guidelines were issued by the commerce and industry ministry's department of industrial policy and promotion (DIPP) with immediate effect.
Also, in the marketplace model, an e-commerce company "will not permit more than 25 percent of the sales effected through its marketplace from one vendor or their group companies," the DIPP said.
Such companies are, however, allowed to provide support services like logistics, warehousing and collecting money from customers on behalf of sellers, in accordance with the rules set by the Reserve Bank of India.
An analyst said the announcement was overdue.
"An explicit position from the government on where it stood with reference to e-commerce has been long overdue. In that sense, it is good that some clarity has been provided" said Vivek Gupta, partner, BMR Advisors.
Another analyst said the clarification doesn't solve the question of uncertainty over past transactions.
"While the guidelines seek to provide clarity on the current policy, the language seems to suggest that the policy will take immediate effect, perhaps creating some uncertainty on past transactions," said Kalpesh Maroo, partner, BMR & Associates LLP, adding that "Some of the restrictive conditions prescribed under the guidelines could also pose significant challenges and would therefore need to be evaluated closely."
India's e-commerce sector is dominated by homegrown companies such as Flipkart, Myntra, Jabong, Infibeam, Limeroad, Pepperfry and Snapdeal, and global firms such as Amazon and Ebay. Alibaba is another global firm that is keen to make a foray into India.
Most of the homegrown companies have foreign investments.