Government permits FDI in e-commerce inventory model for exports

In a bid to increase exports, the Department for Promotion of Industry and Internal Trade (DPIIT) on Thursday approved the foreign direct investment (FDI) in the inventory-based e-commerce model.

In its order, DPIIT said, “In order to facilitate greater exports through easier and increased access of global markets by Indian sellers, the extant FDI Policy has been reviewed, and it is decided that the restrictions on inventory-based model of e-commerce shall not apply in case of exports of domestically manufactured and/or produced goods/products.”

“An e-commerce entity is permitted to engage in an inventory-based model of e-commerce exclusively for the export of goods or products manufactured and produced in India as per the applicable provisions of the Foreign Trade Policy 2023,” reads the order.

This has come a day before the US is expected to impose fresh tariffs in place of the 10 per cent global duties under Section 122. Currently, the US is proposing to impose a 12.5 per cent tariff on India's imports of goods that are believed to have been made using forced labour.

A number of MSMEs had been appealing to the government to permit FDI in the inventory-based model in order to reduce the cost of compliance.

According to industry sources, this move could help Indian manufacturers avoid laborious documentation on an individual basis, which could potentially be better handled by major e-commerce giants like Amazon and Walmart-owned Flipkart.

Prior to this change, the online marketplace model of e-commerce allowed 100 per cent FDI through the automatic method, but the inventory-based model prohibited FDI. E-commerce companies may own inventory of goods and services and sell them directly to customers under the inventory-based model of e-commerce.

In contrast, the marketplace-based approach only permits e-commerce businesses to have an electronic and digital network to serve as a middleman between buyers and sellers.

“As per the Consolidated FDI Policy Circular of 2020, FDI is permitted in Business to Business (B2B) e-commerce and the marketplace model of e-commerce. However, FDI is not permitted in Business to Consumer (B2C) e-commerce and the inventory-based model of e-commerce where inventory of goods and services is owned by the e-commerce entity and is sold to the consumers directly,” DPIIT said.

India’s e-commerce market is mainly dominated by small businesses that export products valued between Rs 2,500 and Rs 1,00,000. Popular products include handicrafts, artwork, literature, ready-made clothing, jewellery and gems.