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Q96 (IAS/2022) Economy › Industry, Infrastructure & Investment › Foreign direct investment Official Key

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 :

Result
Your answer: —  ·  Correct: D
Explanation

The correct answer is Option 4 (Neither 1 nor 2) based on the Foreign Direct Investment (FDI) policy guidelines issued by the Department for Promotion of Industry and Internal Trade (DPIIT).

  • Statement 1 is incorrect: Under current consolidated FDI policy, 100% FDI is permitted in the marketplace model of e-commerce, but prohibited in the inventory-based model. This means foreign-owned platforms function strictly as facilitators between buyers and sellers and are expressly forbidden from selling their own goods or exercising ownership over the inventory sold on their platforms.
  • Statement 2 is incorrect: The regulations are absolute rather than a matter of degree. An entity having equity participation by the e-commerce marketplace entity (or its group companies) is prohibited from selling its products on the platform run by such marketplace entity. There is no "limited degree" allowed; if a marketplace has an equity stake in a seller, that seller cannot operate on its platform.

Since both statements misrepresent the restrictive nature of India's e-commerce FDI norms, Option 4 is the right choice.

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Don’t just practise – reverse-engineer the question. This panel shows where this PYQ came from (books / web), how the examiner broke it into hidden statements, and which nearby micro-concepts you were supposed to learn from it. Treat it like an autopsy of the question: what might have triggered it, which exact lines in the book matter, and what linked ideas you should carry forward to future questions.
Q. With reference to foreign-owned e-commerce firms operating in India, which of the following statements is/are correct ? 1. They can sell …
At a glance
Origin: From standard books Fairness: High fairness Books / CA: 10/10 · 0/10
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This is a textbook 'Static Economy' question masquerading as Current Affairs. The rules for FDI in e-commerce are standard static topics covered in every major economy book (Vivek Singh, Ramesh Singh). If you are reading daily news articles but skipping the 'FDI in Retail' chapter of your base book, you are studying backwards.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
Under India's FDI and e-commerce regulations, are foreign-owned e-commerce firms operating in India allowed to sell their own goods (operate as inventory-based sellers) in addition to operating marketplaces?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 7: Indian Economy after 2014 > 7.12 FDI in Retail > p. 243
Presence: 5/5
“E-commerce companies can operate under two different models in India. • The first is the marketplace model where the e-commerce firm simply acts as a platform that connects buyers and sellers. 100% FDI is allowed in e-commerce companies in this model.• The second model is inventory-based where the inventory of goods sold on the portal is owned or controlled by the e-commerce company. FDI is not allowed under this model.”
Why this source?
  • Defines two e‑commerce models: marketplace (platform connecting buyers and sellers) and inventory‑based (inventory owned/controlled by the e‑commerce company).
  • States 100% FDI is allowed for marketplace model but FDI is not allowed for inventory‑based model.
  • Directly distinguishes that foreign investment is permitted only in the marketplace model, not where the firm owns inventory.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 7: Indian Economy after 2014 > 7.12 FDI in Retail > p. 244
Presence: 5/5
“What was happening earlier was that large e-commerce companies such as Amazon and Flipkart, while not owning inventory themselves, were providing a platform for their group companies such as CloudTail and WS Retail respectively. This was skewing the playing field, especially if these vendors enjoyed special incentives from the e-commerce firm, over others. These controlled or owned vendors may then be able to offer discounts to customers that competitors may not be able to match. Hence, Government in Dec 2019, made the following clarifications/changes in the FDI policy in e-commerce: • 1. Vendors that have any stake owned by an e-commerce company cannot sell their products on that e-commerce company's portal.• 2.”
Why this source?
  • Describes earlier practice of e‑commerce firms routing sales through group vendors, creating an uneven playing field.
  • Records the Dec 2019 FDI policy clarification that vendors with any stake owned by an e‑commerce company cannot sell on that company's portal, blocking related inventory arrangements.
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