New Delhi: The government permitted 100 per cent FDI in the online marketplace format of e-commerce on Tuesday.

Foreign direct investment (FDI) has not been allowed in inventory based model of e-commerce as per the guidelines issued by the Department of Industrial Policy and Promotion (DIPP).

This notification has been long-awaited by e-commerce firms, such as Flipkart, Snapdeal and Amazon. The notification is expected to redefine the way online retail is done in India.

To clarify, DIPP has also come out with the definition of ‘e-commerce’, ‘inventory-based model’ and ‘market place model’.

E-commerce means buying and selling of goods and services including digital products over digital and electronic network.

The inventory-based model of e-commerce means an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to consumers directly.

Market place model of e-commerce means providing of an IT platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller.

The government states that an e-commerce entity will not own the inventory that is being sold on the platform. It has also stipulated that an e-commerce entity will not permit more than 25% of the sales through its marketplace from one vendor or its group companies. Both these stipulations are likely to force some of the entities operating in India to revisit their business models to conform to the new rules.