The Department of Industrial Policy and Promotion (DIPP) issued Press Note 2 dated 26 December 2018 (Press Note) amending the Consolidated FDI Policy Circular, 2017 (FDI Policy) in relation to the e-commerce sector. The Press Note came into effect from 1 February 2019.
In this update, we have discussed the changes introduced pursuant to the Press Note and its impact on the entities operating in the e-commerce sector.
Under the FDI Policy, the FDI cap for e-commerce activities has been prescribed to 100%, under the automatic route. However, the FDI policy stipulates that such e-commerce activity will be limited to business-to-business (B2B) e-commerce and shall not be in business-to-consumer (B2C) e-commerce. e-commerce entities have, in the past, relied on creative structures in order to carry out B2C e-commerce while remaining within the confines of the law. The Press Note seeks to address this issue.
The key changes made to the FDI Policy pursuant to the Press Note are as follows:
DIPP issued certain clarifications in respect of the Press Note.
These clarifications state that the Press Note has merely
reiterated the policy provisions in relation to FDI in the
e-commerce sector to ensure better implementation.
FEMA 20(R) was amended by the Foreign Exchange Management (Transfer or Issue of Security to a Person Resident Outside India) (Amendment) Regulations, 2019, dated 31 January 2019 (FEMA Amendment). Pursuant to the FEMA Amendment, the provisions of Press Note 2 have been incorporated in FEMA 20(R).