6 min readNew DelhiUpdated: Jul 23, 2026 11:41 PM IST
The Department for Promotion of Industry and Internal Trade (DPIIT) on Thursday permitted foreign direct investment (FDI) in the inventory-based model of e-commerce, a step that is aimed at boosting exports. This also comes a day before the US is expected to replace 10% global tariffs under Section 122 with new tariffs. The US has currently proposed a 12.5% tariff on India for importation of goods that are deemed to be produced through forced labour.
A section of MSMEs had been petitioning the government to allow FDI in the inventory-based model as it could help ease the compliance burden. With this move, Indian manufacturers would potentially avoid tedious paperwork on an individual basis, which could be better handled by large e-commerce players such as Amazon and Walmart-owned Flipkart, industry sources said.
“An e-commerce entity is permitted to engage in inventory-based model of ecommerce exclusively for the export of goods or products manufactured and produced in India as per the applicable provisions of the Foreign Trade Policy 2023 read with the Handbook of Procedures (HBP) and the Foreign Exchange Management (Export of Goods & Services) Regulations, 2015, as amended from time to time,” DPIIT said in an order.
The department said that the easing of FDI norms has been done to facilitate greater exports through easier and increased access to global markets by Indian sellers, stressing that restrictions on inventory-based models of e-commerce “shall not apply in case of exports of domestically manufactured goods”.
The Indian Express had reported in August last year that the government is mulling over allowing inventory-based models to shore up exports amid steep US tariffs which had been adversely affecting MSMEs.
Before this move, 100% foreign direct investment (FDI) was allowed under the automatic route in the marketplace model of e-commerce, but FDI was not permitted in the inventory-based model of e-commerce.
‘Inventory model a necessity for MSME exports’
Under the inventory-based model of e-commerce, inventory of goods and services can be owned by e-commerce entities and sold directly to consumers. The marketplace-based model, by contrast, only allows e-commerce companies to have a digital and electronic network to act as a facilitator between buyer and seller.
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A professor at the Indian Council for Research on International Economic Relations, Arpita Mukherjee, said that lifting restrictions on inventory models was necessary, especially with traceability-related norms coming into effect in several developed countries, like Digital Product Passport (DPP) regulations in the EU, which require digital records spanning the entire lifecycle of a product. “So with traceability becoming a norm going forward, Indian MSME exports could get locked out of foreign markets without compliance. From this standpoint, an inventory model is a necessity as large companies can support compliance,” Mukherjee said.
Think tank GTRI said that permitting inventory-based e-commerce for exports is unlikely to remain a narrow exception. Once foreign-funded platforms are allowed to own and manage inventory in India, pressure will inevitably grow to extend the same model to domestic sales—a demand global e-commerce companies have pursued for years, the think tank said. “In practice, maintaining separate inventories for exports and domestic sales will be difficult to monitor, making the export-only carve-out a likely stepping stone towards full-scale inventory-based e-commerce under FDI,” GTRI said.
“MSMEs have been facing several compliance-related challenges related to paperwork, testing and labelling. As a result, only 12,000-odd MSMEs managed to do e-commerce exports in the country. With the government allowing FDI in an inventory-based model, large companies can come in, source products from MSMEs and handle paperwork, democratising the process. This is the model that is used globally. These large companies also use predictive analysis to better assess demand in the export market. Using this, our MSMEs can establish connections with large customers in different markets,” Vinod Kumar, President, India SME Forum, said.
“The Press Note has provided a much-needed clarification that resolves interpretational issues. The inventory-based e-commerce restriction was originally introduced to regulate domestic retail trading. However, questions had arisen on whether the same restrictions should extend to marketplace models facilitating export. By clarifying the position, the government has removed uncertainty, reinforced policy predictability for foreign investors, and aligned the FDI framework with India’s broader export promotion agenda, while preserving the safeguards applicable to domestic e-commerce,” Sunil Kumar, Partner, Tax and Regulatory Services, EY India said.
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Small firms face compliance burden
Notably, India’s e-commerce industry is primarily dominated by small businesses that export products valued between $25 and $1,000, with popular items including handicrafts, art, books, ready-made garments, gems and jewellery. According to think tank GTRI, India’s e-commerce exports have the potential to reach $350 billion by 2030.
Experts say that Indian exports through e-commerce currently stand at only $5 billion, whereas China’s exports have reached $300 billion. As per a GTRI report, India’s e-commerce exports have the potential to grow at a faster pace than its IT exports did in the early 2000s. But despite this potential, India’s current e-commerce export numbers remain far below expectations.
“India’s current e-commerce export provisions are a patchwork of rules framed for regular B2B exporters. This creates an enormous compliance burden on small firms, and India needs to address all such issues in one place. To address such needs, the report recommends that the Indian government issue a separate e-commerce export policy. E-commerce policies in China, Korea, Japan, Vietnam, etc., have helped many firms sell globally,” GTRI said in the report.