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The government has made an amendment to the existing FDI policy in e-commerce on 26th of December 2018.

  1. What is e-commerce?

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

  1. Who is an e-commerce entity?

An e-commerce entity is a company incorporated under the Companies Act 1956 or the Companies Act 2013 or a foreign company covered under the Companies Act, 2013 or an office, branch or agency in India operating under FEMA regulations, owned or controlled by a person resident outside India and conducting the e-commerce business.

  1. Models for e-commerce

The E-commerce models are generally categorized into two: (i) Inventory Model and (ii) Marketplace model.

(i)  Inventory based model of e-commerce

Inventory based model of e-commerce is an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly (Alibaba).

(ii)  Marketplace based model of e-commerce

Marketplace based model of e-commerce is an information technology platform by an e-commerce entity on a digital & electronic network to act as a facilitator between buyer and seller (eg. Amazon, Flipkart).

  1. Regulations for FDI in e-commerce

The government is following a well-designed FDI policy in FDI. Following are the important provisions for FDI policy in e-commerce sector after the amendment on December 26th, 2018.

(A). E-commerce entities can engage only in Business to Business (B2B) e-commerce and not in Business to Consumer (B2C) e-commerce.

(B). FDI holdings in e-commerce entities- 100% FDI in market place model whereas no FDI in inventory base model.

  1. i) 100% FDI under automatic route is permitted in marketplace model of e-commerce.
  2. ii) FDI is not permitted in an inventory-based model of e-commerce.

Table: FDI regulation in e-commerce

Sector/Activity Equity/FDI Cap Entry Route
E-commerce activities (market place model) 100%

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Hemant Bhatt

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