Previous Year Question
With reference to foreign-owned e-commerce firms operating in India, which of the following statements is/are correct?
They can sell their own goods in addition to offering their platforms as marketplaces.
The degree to which they can own big sellers on their platforms is limited.
Select the correct answer using the code given below:
1 only
2 only
Both 1 and 2
Neither 1 nor 2
Correct Answer: B
Detailed Solution
India’s FDI policy recognises two distinct e-commerce models:
Marketplace-based model: The e-commerce entity provides a digital platform connecting buyers with independent sellers.
Inventory-based model: The e-commerce entity owns or controls the inventory and sells goods directly to consumers.
Up to 100% FDI under the automatic route is permitted in the marketplace model, whereas FDI is not permitted in the inventory-based e-commerce model.
Statement 1 is incorrect.
A marketplace e-commerce entity receiving foreign investment cannot own or control the inventory sold through its platform. If it owns goods and sells them directly to consumers, it effectively becomes an inventory-based entity, in which FDI is prohibited.
A marketplace entity may provide services such as:
Information-technology platform.
Logistics and warehousing.
Payment collection.
Order processing.
Call-centre and customer support.
Fair and non-discriminatory support services to sellers.
If more than 25% of a vendor’s inventory purchases are made from the marketplace entity or its group companies, such inventory may be deemed to be controlled by the marketplace entity.
Statement 2 is correct.
The FDI policy restricts ownership and control relationships between the marketplace entity and vendors operating on its platform.
A vendor in which the marketplace entity or its group company has equity participation is not permitted to sell on that marketplace platform. These restrictions seek to prevent:
Indirect inventory control under the appearance of a marketplace.
Preferential treatment of selected vendors.
Predatory pricing.
Marketplace-seller arrangements that effectively allow the platform to function as a retailer.
An earlier version of the policy also imposed a 25% ceiling on the value of total sales through a marketplace from a single vendor or its group companies. Subsequent amendments focused particularly on vendor ownership, equity participation and inventory control.