Indian government to ease on FDI regulations in Ecommerce

India’s Department of Industrial Policy and Promotion (DIPP) is currently investigating the allowance of Foreign Direct Investments (FDI) in Ecommerce within India.

India currently has strict FDI policies prohibiting any foreign company from investing in the country. The FDI laws were passed in 1990, before Ecommerce entered India. However the Indian government has made it clear Foreign Direct Investments are not allowed for any consumer facing retail businesses, including internet based companies. Not being able to invest in online retail means Ecommerce companies from outside the country are not allowed to sell directly to Indian consumers.

These restrictions have forced online retail companies such as Amazon to adopt a “Marketplace Model”. The Marketplace Model is when Ecommerce companies pose as a platform for other merchants to sell their goods. The discussion paper devised by DIPP is to allow for FDI for Ecommerce in physical goods, meaning companies could sell directly to customers without the need of third party merchants.

The paper is currently being circulated to government officials who have a say in the decision, with a deadline of January 28th 2014. If passed, the new regulations will be instilled before March 2014.

“Once we get all the feedback, we will circulate the Cabinet (to all ministries for an inter-ministerial discussion). It should be there before March. But point is whether to allow it only in goods retail or both in goods as well as services,” added a government official.

Amazon’s Indian extension Amazon.in, has recently been meeting with the Indian government regarding an ease on FDI regulations. We are wondering if the news on the change in law is a result of those meetings.

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