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India approves foreign investment in e-commerce sector
March 29, 2016 / 5:32 PM / in 2 years

India approves foreign investment in e-commerce sector

MUMBAI (Reuters) - India on Tuesday approved 100 percent foreign investment in marketplace e-commerce companies, formalising rules for the first time for the multi-billion dollar sector.

The logo of India's largest online marketplace Flipkart is seen on a building in Bengaluru, India, April 22, 2015. REUTERS/Abhishek N. Chinnappa/Files

After years of protectionist policies, India started opening up its retail sector in 2011 but so far had not laid down explicit rules governing foreign investment in the fast-growing e-commerce segment.

In a notification on Tuesday, India’s commerce ministry said it would allow 100 percent foreign direct investment in marketplace e-commerce companies, which would also be allowed to provide services including warehousing, inventory and payments processing to merchants.

However, the notification said e-commerce companies would not be allowed to influence prices of the goods sold on their website, and that not more than 25 percent of goods sold can come from a single merchant.

The ministry also said foreign investment in inventory-based e-commerce companies, where goods sold are owned by the online retailer, would still not be allowed.

Global e-commerce giant Amazon.com Inc along with home grown but foreign-funded rivals Flipkart and Snapdeal have been operating marketplace e-commerce companies that do not own inventory, but instead act as platforms connecting buyers and sellers through support services and for a commission.

“An explicit position from the government on where it stood with reference to e-commerce has been long overdue. In that sense, it is good that some clarity has been provided,” said Vivek Gupta, a partner at BMR Advisors.

Bank of America Merrill Lynch has forecast Indian e-commerce will surge to $220 billion in value of goods sold by 2025 from about $11 billion last year, outpacing growth in bricks and mortar retail.

Reporting by Himank Sharma; editing by Susan Thomas

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