Why in the news ?
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As per the official statement from DIPP, the government is not planning to ease rules to allow foreign direct investment (FDI) in business to consumer (B2C) e-commerce players holding the inventory of various goods, even if such products are locally-made.
Concept
There are two important types of e-commerce model :
1. Marketplace based model of e-commerce means providing an information technology platform by an e-commerce entity on a digital & electronic network to act as a facilitator between the buyer and seller.
-Currently 100% FDI is allowed under this model.
2. Inventory based model of e-commerce means an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly.
-Currently India does not allow FDI under this model.
More in the news
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FDI allowed in the retailing of food items produced in India up to 100 per cent through government approval, will continue.
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This means players like Amazon and Flipkart can’t float the so-called inventory model of e-commerce and continue to run only as online market places.
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Recently, a task force on e-commerce recommended that up to 49 per cent FDI be allowed in e-tailers, provided they sell only domestically-produced items.
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Currently, up to 100 per cent FDI is allowed in e-commerce marketplaces via the automatic route but no FDI is allowed in e-tailers holding inventory of goods, except in the food retailing.
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So while Amazon can run its online and offline stores for food retailing, for which it has already got government approval, it can’t hold inventory of other goods.
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Also, it is mandated to keep its food retailing separate from other ventures.
Source
The Hindu.