Govt opens inventory-based e-commerce to foreign direct investment for exports only
The Department for Promotion of Industry and Internal Trade (DPIIT) reviewed the consolidated FDI policy and inserted a new provision allowing foreign direct investment in the inventory-based model of e-commerce, but exclusively for entities that export goods manufactured or produced in India
Under the amendment, an e-commerce entity may hold and sell inventory it owns, provided the goods are exported and not sold to domestic consumers, in line with the Foreign Trade Policy 2023, the associated Handbook of Procedures, and the Foreign Exchange Management (Export of Goods & Services) Regulations, 2015
The prohibition on FDI in the inventory-based model for business-to-consumer (B2C) domestic retail sales remains unchanged — foreign-funded e-commerce firms still cannot own inventory and sell it directly to Indian consumers
The stated objective is to help India-based sellers gain easier access to global markets and boost outbound shipments of India-made goods, without altering the competitive position of small domestic retailers, since the concession applies only to the export leg of the business
Marketplace Model vs. Inventory-Based Model of E-Commerce FDI
India's FDI policy for e-commerce activities has, since Press Note 2 of 2018 (effective 1 February 2019, amending the Consolidated FDI Policy), drawn a sharp line between two business models. The marketplace model — where an e-commerce entity merely provides an IT platform connecting buyers and independent sellers, without owning the inventory — has permitted 100% FDI under the automatic route (no prior government approval needed), subject to conditions such as no single vendor or its group companies generating more than 25% of sales through the platform, and no equity linkage between the marketplace and vendors selling on it. The inventory-based model — where the e-commerce entity itself owns the goods and sells them directly to consumers — has been completely barred from FDI for domestic B2C sale, because it would let a foreign-funded entity function like a foreign-owned retailer, bypassing India's separate (and more restrictive) FDI caps on multi-brand retail trading.
Key Details
- Press Note 2 (2018 series), DPIIT — effective 1 February 2019; tightened marketplace-model rules (25% single-vendor sales cap, no vendor equity linkage, no exclusive marketing arrangements)
- Marketplace model: 100% FDI, automatic route (no government approval)
- Inventory-based model for domestic B2C sale: FDI not permitted at all — this bar continues
- The 2026 amendment carves out a narrow exception: inventory-based FDI is now allowed only when the entity exports Indian-made/produced goods, keeping the domestic retail bar fully intact
The new policy does not touch the marketplace-model rules or lift the domestic-sale ban — it creates a third, export-only lane so that a foreign-backed inventory-holding exporter (e.g., a global fulfilment or private-label export operation sourcing from India) can now receive FDI, so long as none of that inventory is sold within India.
Foreign Trade Policy (FTP) 2023 and the Export-Promotion Framework
The Foreign Trade Policy 2023, announced 31 March 2023 and effective from 1 April 2023, replaced the earlier five-year FTP cycle with a dynamic, non-time-bound framework that the government can amend as needed rather than waiting for a scheduled review. It targets USD 2 trillion in exports (goods and services combined) by 2030 and rests on four themes: incentive-to-remission, collaborative export promotion (Centre-state-district partnerships, including "Towns of Export Excellence"), ease of doing business through process digitisation, and support for emerging sectors — explicitly including e-commerce exports.
Key Details
- FTP 2023: announced 31 March 2023, in effect from 1 April 2023; no fixed five-year end date, unlike FTP 2015-20
- Export target: USD 2 trillion (goods + services) by 2030
- FTP 2023 specifically flagged e-commerce export hubs, along with payment reconciliation and returns-policy norms for e-commerce exporters, as a priority emerging area
- Compliance for the new FDI carve-out is explicitly tied to FTP 2023 provisions and the Foreign Exchange Management (Export of Goods & Services) Regulations, 2015
The FDI liberalisation operationalises a direction FTP 2023 had already flagged — treating e-commerce exports as a distinct emerging sector needing tailored regulatory treatment — by removing a capital-access constraint (FDI in inventory-based structures) that was holding back export-focused e-commerce investment.
FEMA, 1999 and Sectoral FDI Caps
Foreign investment into Indian entities is governed under Section 6 of the Foreign Exchange Management Act (FEMA), 1999, through Rules and Regulations notified by the Reserve Bank of India and the Consolidated FDI Policy issued periodically by DPIIT. Sector-specific caps and route conditions (e-commerce, defence, insurance, multi-brand retail, etc.) are notified as amendments to this consolidated policy and given legal effect through FEMA (Non-Debt Instruments) Rules, 2019.
Key Details
- FEMA, 1999 replaced FERA, 1973, shifting the regime from criminal enforcement to a civil, management-oriented framework for foreign exchange
- DPIIT frames FDI policy; RBI and the Ministry of Finance operationalise it through FEMA Rules/Regulations
- FDI comes via two routes: automatic (no prior approval) and government (approval required) — the e-commerce marketplace model sits in the automatic route
- The new inventory-based export carve-out will similarly need to be notified as an amendment to the FEMA Non-Debt Instruments Rules to take full legal effect
Any DPIIT policy change on FDI, including this one, is a policy announcement that must subsequently be codified through amendments to FEMA Rules/Regulations for it to have statutory force — a two-step process (policy notification, then legal notification) that is a recurring UPSC theme in FDI-policy questions.
- Nodal authority for the policy change: Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry
- Marketplace-model e-commerce FDI cap: 100%, automatic route (unchanged, per Press Note 2 of 2018 series, effective 1 February 2019)
- Domestic B2C inventory-based e-commerce FDI: continues to be prohibited
- New carve-out: 100% FDI permitted in inventory-based e-commerce solely for export of goods manufactured/produced in India
- Legal instruments referenced for compliance: Foreign Trade Policy 2023, its Handbook of Procedures, and FEMA (Export of Goods & Services) Regulations, 2015
- FTP 2023 overall export target: USD 2 trillion (goods and services) by 2030