By Beena Saraswathy
The government proposes to allow FDI in inventory-based e-commerce platforms to shore up exports. The crucial question is whether foreign e-commerce firms, despite their potential to boost export demand through their global presence, will operate in a way that benefit Indian producers, writes Beena Saraswathy
l What are the changes proposed by the govt?
THE PRESS NOTE issued by the Department of Industrial Policy and Promotion (DIPP) on July 23, 2026 has proposed to remove restrictions on foreign direct investment (FDI) in the inventory based model, exclusively for the export of domestically manufactured products. “An e-commerce entity is permitted to engage in 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 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.
This is a significant departure from previous regulations and comes after a very long time. India’s e-commerce industry is primarily dominated by micro, small and medium enterprises (MSMEs) that export products valued between $25 and $1,000, with popular items including handicrafts, art, books, readymade garments, gems and jewellery.
l Marketplace vs inventory-based model of e-commerce
DIPP DEFINES E-COMMERCE as the buying and selling of goods and services including digital products over digital and electronic network. E-commerce platforms are one of the unique features of Industry 4.0 and are at the centre of the many benefits that accrue to consumers. There are two important models of e-commerce operations: the marketplace model and the inventory-based model. In the marketplace model, the e-commerce entity is only a facilitator to the buyers and sellers through the means of an information technology platform on a digital and electronic network. Whereas in the inventory-based model, the e-commerce entity owns the inventory of goods and services and sells to the consumers directly.
l What is the rationale for the regulatory change in the e-commerce sector?
THE BAN ON FDI in the inventory-led model was imposed to safeguard small- and medium-sized producers from acute foreign competition and to ensure fair market conditions. The change in FDI regulation has been done to facilitate more exports by Indian sellers through easier access to global markets. With this, the foreign e-commerce firms will be able to invest in inventories and increase the export potential of several items like textile products, handicrafts, spices and such other items, which may be beneficial to the small producers, who are currently facing several hurdles in accessing foreign markets.
l Earlier FDI rules for e-commerce
AS PER THE Consolidated FDI Policy circular (2015), FDI up to 100% under the automatic route is permitted in the marketplace model whereas FDI is not permitted in the inventory-based model. FDI is allowed only in business-to-business (B2B) where it is selling to retailers and prohibited in business-to-consumer (B2C) operations where products are sold directly to consumers.
Along with this, some important conditions were also imposed on the e-commerce enterprises, which includes:
(i) an e-commerce enterprise providing marketplace service will not exercise ownership over inventory; i.e., the goods intended to be sold;
(ii) one vendor or their group of firms shall not constitute more than 25% of the sales of an e-commerce entity;
(iii) warranty, quality and customer satisfaction are the seller’s responsibility;
(iv) the marketplace entity does not directly or indirectly influence the price of good or services.
These conditions are very crucial to ensure fair market conditions for all e-commerce platforms and the sellers registered within each platform.
l Potential risks due to the policy shift
THOUGH THE PROPOSED changes are currently restricted to the export market, the entry of e-commerce platforms in the product market may pose a threat to existing sellers and domestic manufacturers as some platforms already sell their own brands (for instance, Amazon’s Vedika and Solimo brands). Digital markets are characterised by the prevalence of network effects, high sunk costs, low marginal costs and multi-sided markets, which not only ensures high entry barriers for new players but also leads to discriminatory pricing and marketing strategies in favour of own products. Advertisement and marketing are a major source of income for these companies, which enable them to cross-subsidise their own products and thereby can pose competitive constraints to other sellers on the platform. Own products may also get ‘preferential treatment’ in search and display, which will create unfair competition within the platform.
The writer is assistant professor, Institute for Studies in Industrial Development, New Delhi
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.