Crossing the Rubicon

On July 23, the Department for Promotion of Industry and Internal Trade proposed allowing foreign-invested e-commerce companies to own inventory and export goods manufactured in India directly from their own warehouses. Until now, foreign-funded platforms have been restricted to operating as marketplaces that connect buyers and sellers but cannot own the products they sell. This distinction has formed the cornerstone of India’s e-commerce policy since 2016.

The government argues that the proposal merely facilitates exports. But policies should be judged not only by what they immediately permit but also by the precedents they establish. By allowing foreign-funded platforms to own inventory for exports, India weakens its long-standing policy against foreign-funded inventory-based e-commerce, making it much harder to defend the prohibition on inventory-based retail in the domestic market. It also makes it easier for the US and global e-commerce companies to argue that if inventory ownership is acceptable for exports, it should also be allowed for domestic sales and products sourced from anywhere in the world.

This distinction was never arbitrary. India has long allowed 100% foreign investment in marketplace platforms while prohibiting it in inventory-based e-commerce because the latter is effectively multi-brand retail conducted online. Successive governments have kept foreign investment in multi-brand retail tightly restricted, reflecting concerns over the competitive imbalance between global corporations and India’s millions of neighbourhood retailers.

The marketplace model seeks to preserve that balance. The platform provides technology, logistics, and payment systems, while independent businesses retain ownership of goods and customer relationships. Inventory-based retail fundamentally changes these incentives. The platform becomes both a marketplace and a merchant, controlling procurement, pricing, promotions, and consumer visibility.

That difference matters because digital platforms derive enormous advantages from data, scale, and logistics. Once they become sellers themselves, they can privilege their own inventory, negotiate lower prices from suppliers, and consolidate market power in ways that are difficult for independent businesses to match.

Supporters of the proposal argue that these concerns do not arise because the new model applies only to exports. Yet such exceptions have a habit of becoming permanent precedents for much broader openings.

There is another problem. Maintaining separate inventories for export and domestic sales is straightforward in legal drafting but much harder in commercial reality. Warehousing, procurement, inventory management, and supply chains increasingly operate through integrated digital systems. Monitoring whether goods meant for export ultimately enter the domestic market, directly or indirectly, would require a level of regulatory oversight that India has historically struggled to sustain.

More importantly, once multinational platforms establish inventory operations for exports, they are likely to argue that extending the same rights to domestic commerce is merely the next logical step. They have consistently sought such access over the past decade. Having accepted the principle of inventory ownership, future governments may find it increasingly difficult to resist demands to remove the remaining restrictions.

The consequences would extend beyond foreign investment policy. Inventory ownership would significantly alter bargaining relationships across India’s retail ecosystem. Small manufacturers and traders would increasingly sell to the platform rather than directly to consumers. Over time, dependence on a handful of dominant platforms could reduce suppliers’ bargaining power, compress margins, and limit the commercial independence of India’s MSMEs.

This is not an argument against foreign investment or exports. The real question is whether changing e-commerce investment rules is necessary to achieve those objectives.

The answer is far from obvious. Foreign companies already have multiple legal avenues to source and export Indian products. They can purchase through wholesale operations, contract manufacturers, sourcing offices, or export intermediaries. None of these channels requires a change to India’s fundamental approach to foreign investment in e-commerce.

If exports can already occur under existing rules, the proposal addresses no obvious market failure. Its principal significance lies elsewhere: it creates the first formal exception to India’s prohibition on foreign-funded inventory-based e-commerce.

If the government nevertheless decides to proceed, it should ensure that the exception remains genuinely limited. Export inventories should be physically and digitally separated from domestic operations, with independent warehouses, inventory records, and audit trails. Regulators should require real-time reporting of inventory movements and prohibit self-preferencing in search rankings, advertising, and product recommendations. Diversion of export inventory into the domestic market should attract strict penalties, and the policy should be subject to an independent review after a fixed trial period.

Yet even these safeguards raise an uncomfortable question. India’s experience with regulating large digital platforms suggests that designing guardrails is much easier than enforcing them. Sophisticated corporate structures, related-party transactions, and complex logistics networks often evolve faster than regulatory oversight. Without credible enforcement, an export-only relaxation may gradually evolve into de facto inventory-based domestic retail.

The proposal should also be viewed in a broader trade policy context. In recent years, India has expanded market access for US companies through tariff cuts, regulatory changes, and investment liberalisation, covering products such as bourbon whiskey, premium motorcycles, medical devices, and alfalfa hay. The proposed e-commerce reform continues that trend.

The larger issue is strategic. Trade negotiations work best when both sides exchange concessions. If India grants market access outside formal FTA negotiations, it risks giving the US commercial gains without securing equivalent benefits for Indian exports. Such unilateral concessions also weaken India’s negotiating leverage in future trade talks.

The real issue is not whether foreign platforms can export Indian products — they already can. It is whether a narrow export exception becomes the gateway to foreign-controlled inventory-based retail. Once that door is opened, closing it again may prove impossible.

Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.