Decoding India’s FDI E-Commerce Policy and what it means for UK Businesses

By UK India Business Council (UKIBC)

The Government of India (GOI) has recently announced policy amending existing frameworks for FDI in the Indian e-commerce industry. This will have implications for foreign online market platforms and their ability to hold stocks as well as offer discounts on foreign brands including UK companies.

The new policy however is complex and rushed leaving many e-retailers requesting an extension to the 1st February deadline simply to get to grips with all requirements and how to comply.

Here we decode the implications of the GoI’s e-commerce policy and share what this might mean for UK businesses. UKIBC is working closely with our members in the retail sector to advocate for further clarity on reforms and opening up FDI in India’s e-commerce market to benefit both trade and the Indian consumer alike.

What does this policy actually change?

The existing FDI Policy sets out that foreign e-commerce platforms should only be there to facilitate transactions between buyers and sellers and cannot own any inventory themselves. However, what counts as ‘owning inventory’ has been up for debate with the new policy imposing a tighter definition through greater restrictions on both sellers and e-commerce platforms.

The key changes are:

  1. No FDI is permitted in wholesale or outright models of e-commerce platforms.
  2. A change in the definition of what counts as an e-commerce platform owning inventory. An e-commerce platform is deemed to be in ‘control’ of the inventory of a seller if more than 25% of sales the seller makes are from an e-commerce platform and it’s ‘group firms’ (firms which directly or indirectly exercise 26% or more voting rights in the other firm, or appoint more than 50% of their board directors to that other firm) under the wholesale or outright models of e-commerce platforms.
  3. Sellers that have any equity participation from the e-commerce platform or its group firms will be restricted from selling their products on that platform.
  4. E-commerce platforms are still allowed to provide key services such as logistics, warehousing, payment, and financing, however this must be on an arms-length basis with non-discriminatory conditions to sellers regardless of equity participation or nationality. This extends to benefits the e-commerce platform offers buyers such as cash-back and refund offers which must be made available for products of any seller on similar terms.
  5. E-commerce platforms won’t be allowed to make exclusivity requirements such as obliging sellers to sell their products exclusively through their platform.
  6. However, the Press Note is currently ambiguous on whether additional incentives may be provided by the Marketplace entity to a vendor who voluntarily chooses to exclusively associate with such Marketplace Entity.

What does this mean for UK businesses?

Foreign e-commerce platforms in India with large holdings of stock are likely to be most impacted by the new policy.

The new policy should not impact sale or return (SOR) model agreements between UK sellers and foreign e-commerce platforms in India as it is the fulfilment partner, and not the brand itself, which is considered the ‘seller’ under this regulation. This mostly applies to leading UK fashion brands for instance where they a) retain ownership of the stock, and b) unlikely to see more than 25% of their sales made from a single e-commerce platform or its group firms.

This policy does effectively end the discounts and cashback offers on UK or other global products that e-commerce platforms with foreign investment can offer.

This means that Indian consumers will likely have to pay full-price for UK products sold through these platforms, making them costly in practice against Indian alternatives.
The impact for UK brands however may be comparatively limited. Many large UK brands are well-recognised as high-quality with loyal customer bases both in the UK and India.

Though discounts and cashback offers help drive extra sales volume, a degree of price-inelasticity amongst customers towards UK firms still makes the Indian e-commerce market a very attractive offer for leading UK retail companies.

These changes will however compound problems for foreign e-commerce platforms (most of whom are currently US companies such as Amazon or Flipkart) in India who will not only be prohibited from holding inventory but will find it harder to shift their large existing inventory in order to comply as they cannot offer discounts on it.

On restricting an e-commerce platform’s ability to require seller exclusivity, the policy is not clear as to whether this applies to sellers who voluntarily offer exclusivity arrangements with the platform.

Ambiguity here and in terms of what counts as ‘discrimination’ or ‘similarity of circumstances’ throughout the policy makes implementation challenging but does potentially leave large UK sellers’ room to still trade their products on foreign e-commerce platforms in India with minor adjustments.

The main challenge however maybe for UK firms where a significant proportion of their sales in India are made through a single foreign e-commerce platform or have low brand-recognition meaning the lack of discounts pit them in direct price-competition with Indian alternatives.

This creates a particularly challenging environment for UK SME’s looking to sell in India outside a SOR model, which not only slows the expansion of future UK-India trade, but restricts choice and price-lowering competition for Indian consumers.

What is the Government trying to achieve through this policy?

From the GoI’s perspective, this policy is all about seeking to level the playing field between international e-commerce giants and emerging Indian platforms. Whilst this has long been the aim of existing legislation, this new policy extends this further and enables more rigorous enforcement.

Ensuring that meaningful competition is able to emerge in the Indian e-commerce market is certainly a commendable aim. However, in practice UKIBC are concerned that these measures will likely result in significant costs and reduced choice for India’s customers.

India’s growing middle classes will represent nearly 80% of households by 2030 (from roughly 50% today) driving 75% of consumer spending. These are people who expect to able to have the same access to leading UK and global brands and products as anyone else without penalty.

Prohibition of FDI in inventory-based models of e-commerce platforms stands at odds with the GoI’s expressed aim on bringing $100 billion FDI to India. Opening the Indian e-commerce market will not only offer the FDI necessary to expand and improve the infrastructure a consumer market will need, but achieve the Government’s own aims of improving the ease of doing business in India more widely.

This policy is yet to go through stakeholder consultation, and as such we advocate that the GoI delays its implementation until this is carried out. Consultation is important to both achieving a predictable operating environment for businesses delivering investment, jobs, and economic growth in India, but to enable UK firms time to fully understand the implications of the policy and how to comply.

If you’re unsure as to whether the GoI’s new policy will affect you, get in touch with our Senior Business Development Manager, Subhayu Ray at


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