In a move that will prevent foreign e-commerce players such as Amazon from expanding into India, the Government on Friday clarified that companies with foreign direct investment cannot sell their products online in India.

“E-commerce activities refer to the activity of buying and selling by a company through the e-commerce platform. Such companies would engage only in business-to-business (B2B) e-commerce and not in retail trading, inter-alia implying that existing restrictions on FDI in domestic trading would be applicable to e-commerce as well,” the Department of Industrial Policy and Promotion said.

As such, extant FDI policy does not permit FDI in B2C (business-to-consumers) e-commerce. The provisions are part of the notification by the industry department on the FDI policies for retail announced on Friday.

The new guidelines will also have a direct bearing on the plans of local e-commerce companies seeking strategic investment from foreign companies through the FDI route. The provision also applies to investments by foreign venture capital and private equity (PE) funds in such ventures.

The Department, while clarifying, said that e-commerce is a capital-intensive business. In many instances, foreign capital has come to the back end. But if the FDI in retail e-commerce is not allowed, it shuts the door for foreign capital in the future as PE players will not have any exit option.

“Retail trading, in any form, by means of e-commerce, would not be permissible, for companies with FDI, engaged in the activity of multi-brand retail trading,” it added.

Sectoral FII limit

On the sectoral FII limit for retail, the Department said the FDI limits for firms engaged in the activity of single-brand retail trading/ multi-brand retail trading. FII limits are governed by the relevant regulations on FII investments.

> Bindu.menon@thehindu.co.in