Regulatory Framework on FDI in E-Commerce

With the stated aim of clarifying the foreign direct investment (‘FDI’) regime for e-commerce activities, the Department of Industrial Policy and Promotion (‘DIPP’) has issued Press Note No. 3 (2016 Series) on March 29, 2016 (‘Press Note’). Prior to the Press Note, the Consolidated Foreign Direct Investment Policy issued by DIPP (‘FDI Policy’) allowed 100% FDI under the au- tomatic route (i.e. without requiring prior approval of the Government of India) in business to business (B2B) e-commerce activities, but did not permit FDI in multi-brand retail trade activi- ty through online e-commerce. In such a regulatory landscape, the ‘marketplace’ model became popular; under the marketplace model, the marketplace entity provided a technology platform to connect buyers and sellers and did not itself undertake any trading activity. Such entities received FDI without any prior approvals from the Government of India. The regulatory frame- work for e-commerce has now been altered by the Press Note in the manner discussed below.