The newly issued Press Note 2 of 2018 adds further nuance to existing regulations governing the e-commerce sector. Through a release dated 3 January 2019, the Government indicated that the changes should be viewed as being clarificatory in nature (rather than new regulation), and driven by complaints that certain e-commerce marketplaces were not complying with existing regulations. This newsletter provides our perspective on this important development in a key sector


The Department of Industrial Policy and Promotion (DIPP) released Press Note No. 2 of 2018 on 26 December 2018, introducing certain additional conditions for the e-commerce sector, under the Consolidated Foreign Direct Investment Policy of India (FDI Policy).  The Press Note amends paragraph 5. 2. 15. 2 (E-commerce activities) of the FDI Policy, and will come into effect from 1 February 2019.  Following confusion over certain aspects of the new requirements, and parleys by the e-commerce industry, the Government released a clarification (PN2 Clarification) on 3 January 2019, outlining some of its policy objectives and responding to media criticism.
The FDI Policy, as it stood prior to these amendments, permitted foreign direct investments (FDI) with no governmental approvals (i.e. under the automatic route) in entities engaged in the marketplace model of e-commerce, and prohibited FDI in entities engaged in inventory-based model of e-commerce.  A marketplace model was defined to mean the provision of an information technology platform and other infrastructure by the e-commerce entity, to facilitate transactions between buyers and sellers.  An inventory model on the other hand, was defined to mean a model in which the e-commerce entity has ownership of goods, and directly sells to consumers on a business to consumer (B2C) basis.

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