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India\nhas set rules for foreign investment in online marketplaces, allowing\nup to 100 percent overseas ownership and providing much-needed clarity\nas billions of dollars pour into the country’s fast-growing e-commerce\nsector.The long-awaited rules permit full foreign ownership of\nsites that connect online buyers to sellers — similar to the model\npioneered by Internet giant eBay.
However, foreign direct\ninvestment in “inventory-based” sites that sell their own stock is\nforbidden, the Department of Industrial Policy and Promotion said\nTuesday.
In practice, India’s e-retailers already considered\nthis to be the case, acting as technological platforms that connect\nbuyers and sellers rather than selling their own products.
Even\nAmazon does not sell its own stock directly to shoppers in India.\nDespite the regulatory fuzziness, domestic marketplace sites such as\nFlipkart and Snapdeal have attracted billions of dollars in overseas\ninvestment.
“This announcement\nbrings current business structures on the right side of the law,”\nDevangshu Dutta, chief executive of Third Eyesight, a retail\nconsultancy in Delhi, told AFP.<\/span>
While\nthe new rules will end much of the uncertainty, the government has also\nimposed restrictions that may cause headaches for some online retailers.
Under the new rules, a single seller can only account for up to 25 percent of sales, the department said.
This\ncould cause problems for some of the big sites which, while technically\nmarketplaces, are reportedly home to a handful of super-sellers that\nprovide the lion’s share of their products.
Aggressive\ndiscounting wars by India’s Internet retailers may also be under\nthreat, as the rules say they are not allowed to “directly or\nindirectly influence the sale price of goods or services”.
“There\nwere no conditions (before) — now it looks like some of the players\nmay have to restructure the agreements with their sellers to be\ncompliant. It’s not very easy,” said Paresh Parekh, a tax partner in\nretail and consumer products at EY.
Some retailers welcomed the\nnew rules, including Kunal Bahl. He founded Snapdeal, one of India’s\nbiggest Internet shopping sites.
“Great to see the guidelines\naround 100% FDI in ecomm marketplaces. Glad the govt recognises and\nsupports an industry transforming India,” he tweeted.<\/p>