The government on Thursday allowed Foreign Direct Investment (FDI) in the inventory-based model of e-commerce for exports. This relaxation will allow large international e-commerce platforms to boost exports from India through this route.
“In order to facilitate greater exports through easier and increased access to global markets by Indian sellers, the extant FDI Policy has been reviewed and it is decided that the restrictions on the inventory-based model of e-commerce shall not apply in case of exports of domestically manufactured and/or produced goods/products,” Press Note 3 amending the FDI policy said.
The Press Note issued by the Department for Promotion of Industry and Internal Trade said that the amendment would be applicable from the date of notification under the Foreign Exchange Management Act (FEMA).
Till now the policy only allows 100% FDI in the marketplace model of e-commerce and business to business e-commerce. In business to consumer e-commerce FDI is not allowed. E-commerce activity where inventory of goods and services is owned by e-commerce entities and is sold to the consumers directly is also not allowed.
Aligning FDI Framework
With the change in policy e-commerce companies with FDI will be able to hold their own inventory but only for export. “The Press Note has aligned the FDI framework with India’s broader export promotion agenda, while preserving the safeguards applicable to domestic e-commerce,” Partner Tax and Regulatory Services EY India Sunil Kumar said.
India’s e-commerce exports hover around $ 4-5 billion or just 1.14% of its total shipments in FY24 while China’s exports through this route are around $ 350 billion. India wants its e-commerce exports to grow to $ 200-300 billion by 2030 when its total exports would be $ 1 trillion. The current size of global e-commerce exports is $1.34 trillion to $1.74 trillion and it is expected to grow to $ 4.30 trillion to $ 4.85 trillion by 2035, according to some reports.
Financial Infrastructure
To get to the target, the Rs 25,060 crore Export Promotion Mission has comprehensive financial allocation frameworks which provide targeted credit guarantees, interest subventions, and trade finance support specifically for e-commerce sellers and MSMEs.
It is also facilitating E-commerce Export Hubs (ECEH) near major transport nodes that act as single-window logistics zones. So far five such pilot hubs have been operationalised in Delhi, Mumbai, and Bengaluru.
