UPSC Prelims 2022 Q6: Indian Economy – External Sector & Balance Of Payments
With reference to foreign - owned e - commerce firms operating in India, which of the following
statements is/are correct?
1. They can sell their own goods in addition to offering their platforms as market - places.
2. The degree to which they can own big sellers on their platforms is limited.
Select the correct answer using the code given below:
- (a) 1 only
- (b) 2 only
- (c) Both 1 and 2
- (d) Neither 1 nor 2
Answer: (b) 2 only
Explanation
Foreign-owned e-commerce firms in India
India's FDI policy treats two e-commerce models differently.
| Model | Meaning | FDI allowed? |
|---|---|---|
| Marketplace model | The firm only runs the platform that links buyers and sellers | 100 per cent, automatic route |
| Inventory model | The firm owns the goods and sells them itself | Not allowed |
The two statements:
| Statement | Verdict | Reason |
|---|---|---|
| 1. They can sell their own goods in addition to offering their platforms as market-places | Incorrect | A foreign-owned firm may run only a marketplace; it cannot hold inventory and sell it |
| 2. The degree to which they can own big sellers on their platforms is limited | Correct | Press Note 2 of 2018 bars a seller in which the marketplace or its group has equity from selling on that platform |
Other rules in Press Note 2 (2018):
| Rule | Detail |
|---|---|
| Inventory control | A seller buying more than 25 per cent of its stock from the marketplace group is treated as controlled by it |
| Exclusive deals | The platform cannot force a seller to sell only on it |
| Pricing | The platform must not influence the sale price and must keep a level playing field |
Answer: (b) 2 only.
Why each option is right or wrong
- (a) Incorrect. Statement 1 is false; the inventory model is closed to foreign-owned firms.
- (b) CORRECT. Only Statement 2 is right; ownership of sellers on the platform is restricted.
- (c) Incorrect. Statement 1 is false; they cannot sell their own goods.
- (d) Incorrect. Statement 2 is true; Press Note 2 of 2018 limits their stake in sellers.
Key point
FDI in e-commerce: 100 per cent in the marketplace model, none in the inventory model; Press Note 2 (2018) bars group-owned sellers and the 25 per cent inventory rule applies.
Remember
Marketplace model: 100 per cent FDI. Inventory model: no FDI.
Common mistakes
- Assuming foreign e-commerce firms sell their own goods because the goods carry their branding.
- Mixing up the marketplace model with the inventory model.
- Forgetting Press Note 2 of 2018, which tightened the rules on platform-owned sellers.
Exam tip
Foreign money may own the shop floor, not the goods. Marketplace yes, inventory no.
Sources
- DPIIT — Press Note No. 2 (2018 Series): Review of the policy on FDI in e-commerce
- DPIIT — Consolidated FDI Policy Circular 2020, para 5.2.15.2 (E-commerce activities)