Cap of 49% FDI in B2C e-commerce aimed at supporting marketplaces willing to sell domestic products

The rationale behind fixing a cap of 49 percent for foreign direct investment (FDI) in a business-to-customer (B2C) e-commerce company was to promote marketplaces willing to sell domestically manufactured products, a government official said on Wednesday.

"The idea was to provoke. Currently very limited Indian products are sold on the e-commerce platforms and a lot of the products that are sold are from outside. During the consultation the issue was raised if FDI should be allowed for companies who are ready to market Indian products,"  said Sudhanshu Pandey, Joint Secretary, Ministry of Commerce and Industry.

Speaking at a round table organised by the Confederation of All India Traders (CAIT), Pandey said that the suggestion had come from the industry itself and the thought was to promote businesses of small-time artisans.

Pandey also stressed that all this is in the consultation stage right now.

Moneycontrol was the first to report that a proposal to ease out FDI regulation in the inventory based e-commerce segment was a part of the first set of draft formulated by the government.

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The proposal, however, has been met with huge criticism from offline vendors associations.

CAIT says that if e-commerce companies were allowed to keep inventory, it will distort the basic fundamentals of the policy.

The proposal is expected to be a diversion from the Press Note 3, which was issued by the government in 2016. The government had then clarified that e-commerce companies looking for capital from foreign investors cannot have an inventory model.

This essentially means these companies cannot stock goods or services and then sell it to buyers coming to their website.