Electronic Commerce or e-commerce means buying and selling of goods and services including digital products over digital and electronic networks like networked computers, television channels, mobiles or any other internet based application used in an automated manner such as extranets, etc. In other words, it refers to online, internet-based selling and buying using a digital instrument like, computer or mobile or tablet.
The above definition has been adopted by the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, Government of India in respect of allowing foreign direct investment (FDI) in such companies. The same was notified on 29 March 2016 (Press Note No. 3). E-commerce activities are governed by number of Regulations/Acts of the Government like the Shop and Establishment Act, Sales of Goods Act, Companies Act, Income Tax Laws, Information Technology Act, the Competition Act, the Consumer Protection Act, etc. IT Act provides legal recognition for these activities. The Consumer Protection Act, 1986, addresses the interests of the consumers. It covers all goods and services and all mode of transactions including e-commerce. [The Consumer Protection Bill, 2018, already introduced in Parliament, intends to replace the existing Act and seeks to provide for establishment of a Central Consumer Protection Authority (CCPA) to deal with unfair trade practices and misleading advertisements and to promote, protect and enforce the rights of the consumers, CCPA will be empowered to investigate, recall, refund and impose penalties. The salient features of the bill include provision for product liability action in cases of personal injury, death, or property damage caused by or resulting from any product; provision for mediation as an Alternate Dispute Resolution (ADR) making the process of dispute adjudication simpler and quicker and simplification of the process of adjudication by the Consumer Fora. The provisions of the Bill will cover the whole country.] A Committee was constituted to examine various issues relating to e-commerce under the Chairmanship of CEO, NITI Aayog. The Committee inter-alia comprises representatives from Department of Industrial Policy & Promotion, Department of Economic Affairs, Department of Electronics & Information Technology, Department of Consumer Affairs and certain State Governments namely Assam, Karnataka, Madhya Pradesh, Maharashtra, Odisha and Punjab. In 2018, a Think tank on the Framework for National Policy on E-commerce has been established by the Department of Commerce. It will provide a credible forum for an inclusive and fact-based dialogue leading to informed policy making, so that the country is adequately prepared to take advantage of the opportunities, and meet the challenges, that would arise from the next wave of advancements in the digital economy. The think tank on the Framework for National Policy on E-commerce will seek to collectively deliberate on the challenges confronting India in the arena of digital economy with a view to developing recommendations for a comprehensive and overarching national policy on e-commerce. Some of the issues that will be discussed by the think tank include the following aspects of e-commerce and digital economy: physical and digital infrastructure, regulatory regime, taxation policy, data flows, server localisation, intellectual property rights protection, FDI, technology flows, responding to disruptions in industrial organisation, need for skill development and trade-related aspects. Developments on e-commerce at the WTO and evolving appropriate national position on the underlying issues, would be another important dimension of the discussions of the think tank on the Framework for National Policy on E-commerce. The think tank will explore options for providing a fillip to entrepreneurship in digital economy. It will identify specific policy interventions for nurturing domestic firms and create jobs in e-commerce. One of the key outcomes of the first meeting of the think tank in April 2018 was the decision to constitute a task force for preparing recommendations for India's national policy on e-commerce. The task force will be divided into various sub-groups, comprising representation from the Government of India, e-commerce industry and experts with domain knowledge. The task force will finalise its recommendations within six months.
In what context e-commerce is permitted in India?
E-commerce may be carried out for both wholesale trade or for retail trade (sale towards final consumption). It can be either Business to Business (B2B) trading or Business to Consumers (B2C) trading. There is no restriction on conducting e-commerce per se in India. However, certain restrictions exist, if e-commerce is being done by companies receiving FDI.
In India, 100% FDI under automatic route is allowed in Business to Business e-commerce since 2000. When it comes to business to consumers (B2C) trade or retail trade, a distinction is made between single brand retail (selling products of a single brand) and multi-brand retail with respect to permission for FDI and e-commerce.
In the business to consumers (B2C) multi-brand retail segment, if the trade is happening on ‘marketplaces’, as defined in the subsequent section below, 100% FDI under automatic route is permitted in the entity providing that marketplace. Further, FDI is permitted in Business to Consumers e-commerce retail segment In India, only in the following circumstances.
- A manufacturer is permitted to sell its products manufactured in India through e-commerce retail. i.e., Any product manufactured in India whether by foreign entities or domestic entities can be sold through e-commerce. FDI is permissible in such manufacturing entities as per the extant sectoral permissions for FDI.
- A single brand retail trading entity, (means an entity, whether foreign or domestic, which sells only products of one particular brand) operating through brick and mortar stores is permitted to undertake retail trading through e-commerce. 100% FDI is allowed in single brand retail since 2012, with upto 49% under automatic route. FDI beyond that would require prior Government / RBI approval.
- Retail trading, in any form, by means of e-commerce, would not be permissible, for brick and Mortar companies with FDI, engaged in the activity of multi-brand retail trading.
- An Indian manufacturer (which means that more than 50% shareholding is with the Indian entity and rest can be with a foreign entity) is permitted to sell its own single brand products through e-commerce retail. The Indian manufacturer should be owner of that Indian brand and manufactures, in terms of value, at least 70% of its products in-house and can source at most 30% from Indian manufacturers (eg.FabIndia or Reliance may be producing some of its branded products in its own manufacturing facilities located in India. But it may also be sourcing some of these products from other manufacturing entities in India while putting the brand name /label of FabIndia or Reliance on it. Here outside sourcing from other Indian manufacturers is limited to 30% of the products sold). In this instance, even though the entity is actually engaged in multi-brand retailing, FDI is permissible in such cases and is treated similar to Category I entities mentioned above. Here, there is no need for a brick and mortar retail presence by the manufacturer. All his manufactured items may be sold through e-commerce provided it is all coming under a single brand and conforms to the sourcing norms.
Thus, e-commerce mode with FDI is permitted for:
- Any B2B transaction
- Any B2C transaction in products made in India by its manufacturer (whether foreign or domestic)
- Any B2C transaction by a brick and mortar single brand retail company
- Any B2C transaction by an Indian manufacturer, without any brick and mortar presence and using one single brand, provided 70% of his single brand products are manufactured in India or at most 30% is sourced from India
- Any B2C ‘marketplace’ transaction
E-commerce, would not be permissible, for brick and Mortar companies with FDI, engaged in the activity of multi-brand retail trading.
Types of e-commerce in the B2C multi-brand retail trading, as recognised in India:
- Inventory based model of e-commerce: which means an e-commerce activity where inventory of goods and services is owned by the e-commerce entity and is sold to the consumers directly. eg. Third party stores which stock up others products of a specific nature and sell online to consumers (eg. Grocery items but of different brands).
FDI is not permitted in inventory based model of e-commerce.
- Marketplace based model of e-commerce: which means providing an information technology platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller. In other words, it refers to an online aggregator /platform which matches the interest of buyers and sellers, who are distinct from the entity providing and operating that platform. Eg. Flipkart, Snapdeal, Amazone etc.
Such marketplaces can provide support services to sellers in respect of warehousing logistics, order fulfilment, call center services, payment collection and other services. However, they cannot exercise ownership over the inventory of goods purported to be sold. For the same reason, post sales on the e-commerce site, ultimate delivery of goods to the customers, ensuring his satisfaction, implementation of any warrantee / guarantee etc. will be the responsibility of the seller. If there is any ownership over the inventory, it will render the business into inventory based model of e-commerce. To ensure that the marketplace does not own the inventory, it is stipulated that name, address and contact details of the sellers should be clearly made available while displaying the nature and price of these goods on the online platform.
Further, e-commerce entities/marketplace provider cannot directly or indirectly influence the sale price of goods and services and has to maintain the level playing field with other brick and mortar retailers in the country. That is, the marketplace provider cannot offer any discount on their own unless the original seller is giving it.
A marketplace provider can enter into transactions with sellers registered on its platform on a business to business (B2B) basis. However, it cannot source more than 25% of the sales affected on its platform from a single vendor or their group companies. This is to ensure that a variety of sellers are available on the order matching platform.
Payments effected on the marketplace have to conform to the RBI guidelines issued in this regard.
Subject to the above conditions, 100% FDI under automatic route is allowed in this model of e-commerce.
- [Notification by Ministry of Commerce dated *29 March 2016.
- Consolidated FDI Policy of the Government
- Various Press Notes issued by Department of Industrial Policy and Promotion as linked in this write up.