Market focus: e-commerce legislation in India

E-commerce is booming in India and there are great opportunities for international companies in this market. However, in recent years, the Indian government has imposed various restrictions on foreign companies wishing to sell online in India. What do you need to comply with if you want to profit from one of the world's largest online markets? How do you go about it?

Indian e-commerce market grows explosively

With more than 759 million Internet users, India is the world's second-largest online market. It is estimated that there will be more than 900 million Internet users in the country by 2025. During the pandemic, Indians switched en masse to e-commerce platforms for their daily purchases. This further boosted the country's e-commerce market.

Consultancy Bain & Company expects the market size of the Indian e-commerce market to increase from about $30 billion in 2020 to $350 billion in 2030. 

Not for nothing are retail giants such as Amazon and Walmart betting heavily on India. Jeff Bezos recently promised to invest another billion dollars in India, and Walmart further expanded its majority 60% stake in Indian e-commerce market leader Flipkart, with a $1.2 billion investment.

To curb the influence of these American mega-corporations and provide as much transparency to consumers as possible, the Indian government has introduced special regulations that you, as a foreign investor, must consider.

The rules for foreign companies in the Indian e-commerce market 

Since 2015, 100% Foreign Direct Investment has been allowed in the Indian e-commerce market, but that does not mean that every foreign company can open its own webshop and start selling to Indian consumers. The Indian government applies two different models within the e-commerce market with specific rules and restrictions for foreign investors:

The inventory model

In the inventory model, which we know from companies like Amazon or Bol.com, goods and services are owned by the e-commerce company and then sold directly to the customer. The e-commerce company thus owns the inventory and the platform on which the goods are sold. 

Current Indian regulations do not allow Foreign Direct Investment in the inventory model. This means that a foreign company cannot run a web shop in India on which it sells goods and services from its own inventory, because the regulations do not allow a foreign company to own 100% of the sales platform and of this inventory. 

However, there are exceptions to this rule. A foreign entity may hold up to 49% of the shares of an Indian e-commerce platform with an inventory model if: 

• Made in India productsare sold on the platform;

• The founder is an Indian national;

• The company is run by Indian management;

• The company raises funds domestically, allowing large Indian companies to reinvest in new start-ups in the sector.

The marketplace model

In the marketplace model, the e-commerce entity only owns the online platform and is therefore the facilitator between sellers and buyers. In addition, the e-commerce company may provide support services to its sellers such as logistics, warehousing, call centre and payment collection.

In the marketplace model, 100% Foreign Direct Investment is allowed and foreign companies are thus allowed to fully own an e-commerce platform, as long as they do not own the inventory. But more rules apply to foreign-owned e-commerce platforms:

• E-commerce platforms are not allowed to sell products from companies in which they have shares; 

• The e-commerce entity may not exercise any influence or ownership over the goods/services sold on the platform. For example, an e-commerce platform cannot take the initiative to offer products at deep discounts; the company is then automatically seen as an e-commerce entity with the inventory model, with all its consequences.

• A company selling through an Indian e-commerce platform may not contribute more than 25% of the platform's total sales.

• Online exclusive brands are not allowed. It is prohibited for an e-commerce entity to make exclusive arrangements with a seller to sell its products exclusively on one platform. 

• The seller's name & contact details must be on the website.

• After-sales activities are the sole responsibility of the seller. The entity operating the e-commerce platform may not offer this service.

Consumer Protection Act 2019

In late July 2020, the Indian government presented a new law with obligations for e-commerce retailers. The Consumer Protection Act 2019 should provide consumers with more transparency into the company and its products so they can make informed decisions.

E-retailers will therefore be required to include details about returns, refunds, exchanges, warranty, delivery and shipping, payment methods and complaint mechanisms, and the "country of origin" on their platform starting in 2020. The indication of the country of origin must also appear on the products themselves. 

International companies offering their goods and services in the marketplace of an Indian e-commerce entity must provide the above information to that entity.

E-commerce platforms are required, starting in 2020, to provide consumers with as much data as possible about the sellers on their platform. Such as the company's name, address, customer service number and any reviews or other feedback about the seller or products.

Finally, the product must state the "total price" along with any hidden additional costs such as shipping costs, and platforms must not "manipulate" the price of the goods and services offered to make unreasonable profits.

The e-commerce rules are enforced by the Central Consumer Protection Authority (CCPA) in India, and violations of the new act carry hefty fines. Therefore, make sure your entity in India is always compliant with the latest regulations.

Not sure if you are fully compliant? Our experts will run a check for you and give you clear next steps so you are back up to date.

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Praveen Singal

Financial advisor - IndiaConnected

This article was written in collaboration with IndiaConnected's financial advisor, Praveen Singal.

Singal has over 25 years of experience in establishing successful business strategies for European companies looking to start up in India, corporate financial analysis and compliance.

He is also a qualified Chartered Accountant with a specialization in Indian taxation.

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Offshore wind power in India erupts

Over the next seven years, India plans to install as much as 140 gigawatts (GW) of wind power capacity to source 50 percent of the country's power capacity from non-fossil energy sources by 2030. That presents huge opportunities for European suppliers, says wind energy expert Alok Kumar, director at consulting firm DNV GL in India.

First tender for offshore wind power in India

India's Ministry of Energy (MNRE) recently announced that India's first tender for leasing lots for offshore wind installation will be issued in July 2023.

The tender covers four lots in the Gulf of Mannar, off the coast of India's Tamil Nadu province. All four lots offer space for 1 GW of wind turbines. If an energy company wins the tender, it will be allowed to study the seabed, set up a wind farm and sell the electricity directly to customers.

India has so far focused mainly on onshore wind projects, as adjustments had to be made in the regulations of the various Indian states to allow offshore projects. As a result, India has been slow in terms of developing offshore wind energy projects, even though the country has a 7600-km coastline and significant potential to build offshore wind projects.

India is ambitious on green energy

Alok Kumar, director at consulting firm DNV GL in India.

While India is already currently generating 39.2 GW with onshore wind turbines and plans to double that capacity in the next four years, offshore wind development is only bursting forth this year. "This government is firmly committed to wind power development," Alok Kumar, country manager in India for DNV GL told me by phone. "In cooperation with the EU, over the past five years India, through the Facilitating Offshore Wind in India (FOWIND) consortium, has established a roadmap for the development of offshore wind farms in the coastlines of the states of Gujarat and Tamil Nadu. Because of this cooperation, there is great interest in the knowledge and skills of European companies."

Government support for wind energy

Since offshore wind power in India is more than four times more expensive than onshore wind power, the central government in New Delhi will subsidize offshore wind development. For onshore wind energy, the Indian government changed the policy in 2017. Before that, the Indian government signed a contract with a power supplier to purchase electricity at a fixed rate for a specified term (Power Purchase Agreement). Now, parties must bid for a tender to build a wind farm and the party offering power at the lowest price wins. This policy change initially caused tumult in the market, stagnation of new projects and the disappearance of small market players. "By now the craziness is over," says Kumar. "The development of new onshore wind farms is picking up. The price of electricity that initially halved has now stabilized at 75 percent of the price level."

Know-how from Europe

Through cooperation with the EU, Kumar said offshore wind farms in India will be designed according to the European model. "The production of wind turbines will take place entirely in India, but the know how will have to come from Europe. So there are many opportunities for European parties active in the chain. Some European parties have long noticed this. Take Fugro, for example. In the preparatory phase, they have mapped the Indian seabed to determine where wind turbines can be placed safely. But not all parties are taking the Indian market seriously yet. I expect that to change a lot this year."

Curious about the opportunities for your company in the Indian energy sector?

Dutch companies develop special solutions for the Indian agricultural sector

Agriculture in India has faced major challenges for years, but climate change is only compounding the problems for Indian farmers. Can European technologies provide a solution or are they simply too expensive for the Indian agricultural sector? Dutch agricultural technology companies Omnivent and Incotec explain how they are advancing the Indian agricultural sector and making money in India.

Damage caused by climate change

India's agricultural sector is experiencing increasingly widespread adverse weather extremes such as prolonged drought, flooding and salinization of farmland. Late last year, heavy rains destroyed over 800,000 acres of agricultural and horticultural crops in the southern states of Tamil Nadu and Andhra Pradesh, while in the northern state of Kashmir, apple farmers saw their crops fail for the third year in a row due to early snowfall. Consequently, if global climate change continues at the same rate, crop yields in India are expected to drop by 30 percent.

Machinery, refrigeration, logistics & credits

Indian farmers also face a variety of systemic problems such as a lack of sophisticated machinery, difficulties in obtaining credit and logistical problems in marketing their produce. On average, 30-40% of the total crop is lost due to lack of cold storage facilities and/or refrigerated transport, which leads to lower income for the farmers. The Indian agricultural sector is in dire need of affordable solutions to all these problems.

Dutch companies develop special solutions for the Indian agricultural sector

Indian agriculture therefore offers great opportunities for European companies. There is a demand for knowledge that is abundant in Europe. The global specialist in agricultural storage technology, the Dutch company Omnivent, has therefore been active in the country since 2007.. The company began by giving workshops to arable farmers and other key players in the supply chain. "We talked to farmers about ways we could get the agricultural product to the end of storage in a good way," says Errol van Groenewoud, Omnivent's managing director. 

"This was not only useful for them, but also for our company. We learned a lot about the resources they had at their disposal and the farming methods used in India at meetings like this," says van Groenewoud. "We came to the conclusion that our European ventilation and storage products did not match the farmers' needs and that, if you want to capitalise on the growing demand for smart solutions, you have to develop low-threshold and efficient technology at minimal extra cost. We have therefore taken the simple fans that we sold in the Netherlands in the 60s and 70s for drying flower bulbs and adapted them to provide a good and affordable solution for Indian farmers facing high temperatures."

Developing products for India

Also The innovative seed enhancer Incotec soon after entering the market in India, came to the conclusion that while their seed enhancement technologies offered a great solution to the problems of local farmers, their prices were far too high for India. "To optimize our products for Indian crops and cultivation techniques, and especially to keep the price accessible, we decided to develop a product that was cheap for us to produce and that Indian farmers could apply to their seeds themselves," explains Erik-Jan Bartels, managing director of Incotec.

Market leader in India

Incotec is now the market leader in India in seed enhancement and sees a growing need among farmers for new technologies that can make farming methods more robust against climate change. "At the same time, a large proportion of Indian farmers still do not have the means to invest in innovative solutions, no matter how simple and cheap," says Bartels. "As a Dutch company, this should not stop you from taking the step to India. Indian agriculture must adapt to the major weather changes taking place there and although it will take at least a few more years before there is a real change, now is the time for companies to become active in India. India is a country where you have to invest time and energy before you can reap the benefits."

Take your time, it is worth it

"Doing business in India requires building good relationships with your customers," adds van Groenewoude. "So you have to take the time and have a local presence to be able to make that connection. Building a dedicated team in India that can fully focus on this is essential. If you stay at a distance and thus maintain a cold, businesslike relationship with your customers, you will never be successful in business in this country." 

Are you curious about the opportunities the Indian agricultural sector offers for innovative, European companies? Our sector analysis provides a comprehensive overview of key market statistics and growth prospects.

Did you know that India is the fastest growing agricultural machinery market in the world?