E-commerce investment: Treading in the dark?

E-commerce is one of the fastest growing sectors in India in recent years. Technology, favourable demographics, and increasing use of the internet have been major drivers for the rapid growth of the sector. As per an ASSOCHAM-PwC study it is estimated that the Indian e-commerce industry will cross the US$100 billion mark by 2019. E-commerce business models can broadly be categorized as business to business (B2B), business to consumer (B2C), consumer to consumer (C2C), consumer to business (C2B), business to business to consumer (B2B2C) and the marketplace model.

Foreign direct investment (FDI) in India is regulated by Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, and the consolidated FDI Policy formulated by the Department of Industrial Policy and Promotion (DIPP).

The FDI Policy states that “E-commerce activities include all activities of buying and selling by a company through the e-commerce platform”. While 100% FDI under the automatic route is allowed in companies engaged in B2B e-commerce, FDI is prohibited in companies engaged in B2C e-commerce.

Rajesh Begur is the managing partner of ARA LAW, a first-generation law firm with offices in Mumbai and Bengaluru.