With reference to foreign-owned e-commerce firms operating in India, which of the following statements is/are correct ?
- They can sell their own goods in addition to offering their platforms as market-places.
- The degree to which they can own big sellers on their platforms is limited.
Which of the above statements are correct?
Detailed Explanation:
Answer: Option 2 — 2 only
This question tests the understanding of FDI regulations governing foreign e-commerce firms in India. Statement 1 is incorrect because foreign-owned e-commerce companies operating under the marketplace model are prohibited from selling their own goods. Statement 2 is correct as regulations limit their ownership and control over sellers on their platforms.
❌ Statement 1 – Incorrect: Foreign-owned e-commerce firms operating under the marketplace model cannot sell their own goods; they can only provide a platform connecting buyers and sellers. FDI in inventory-based models is prohibited.
✅ Statement 2 – Correct: Press Note 2 (2018) limits platform ownership of sellers—if more than 25% of a vendor's purchases come from the marketplace entity or its group companies, the vendor is deemed controlled by the platform, which is not allowed.
📝 Short Notes: FDI Policy in E-Commerce
| Aspect | Marketplace Model | Inventory-based Model |
|---|---|---|
| FDI Allowed | 100% FDI permitted under automatic route | FDI not permitted |
| Business Model | Acts as facilitator/platform between buyers and sellers | Owns inventory and sells directly to consumers |
| Inventory Ownership | Cannot own or control inventory | Owns and controls inventory |
| Selling Own Goods | Prohibited from selling their own goods | Can sell own goods (but FDI not allowed) |
| Control Over Vendors | Cannot control vendors; 25% purchase limit (Press Note 2, 2018) | Full control over inventory and sales |
| Examples | Amazon India, Flipkart (as marketplace) | Traditional retail e-commerce |
- Press Note 2 (2018): Tightened norms to prevent circumvention—vendors with >25% purchases from marketplace or its group companies are deemed controlled entities.
- Purpose: Protect small retailers and ensure level playing field; prevent predatory pricing and deep discounting.
- Single Vendor Restriction: Marketplace entities and their group companies cannot sell more than 25% of sales through a single vendor.
- Services Allowed: Can provide warehousing, logistics, order fulfillment, call center, and payment collection services.
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