India Eases FDI Rules for E-commerce Inventory for Exports
India's government has relaxed foreign direct investment (FDI) rules, allowing foreign-funded e-commerce companies to hold inventory. This permission is exclusively for goods manufactured or produced in India intended for export.
The Indian government has eased its foreign direct investment (FDI) regulations concerning e-commerce operations. The updated policy permits foreign-funded e-commerce entities to engage in an inventory-based model, specifically for the export of goods manufactured or produced within India. This change is enacted under the Foreign Trade Policy 2023 and takes effect upon notification under the Foreign Exchange Management Act (FEMA).
Previously, India allowed 100% FDI in business-to-business (B2B) e-commerce and marketplace models, where platforms facilitate transactions without holding inventory. However, FDI was prohibited in the business-to-consumer (B2C) or inventory-based model, where the platform owns the goods and sells directly to customers. This new exception aims to facilitate Indian exports by allowing major global players to manage inventory for overseas shipment.
The relaxation allows companies like Amazon and Flipkart to directly procure products from Indian manufacturers, hold them in inventory, and export them globally through their own supply chains. This is seen as crucial for enhancing the traceability of goods, a requirement becoming increasingly standard in international trade, particularly with regulations like the EU's Digital Product Passport. Larger companies can assist Indian MSMEs in meeting these compliance standards.
Despite the potential benefits for exports, industry bodies, including the Confederation of All India Traders (CAIT) and the Global Trade Research Initiative (GTRI), have expressed concerns. They warn that the export-only exception could be exploited to extend into the domestic market or that segregating export and domestic inventory would be difficult to monitor, potentially undermining protections for local retailers.
It is critical to note that this FDI relaxation is strictly for export purposes. The prohibition on FDI in inventory-based B2C e-commerce remains in place for India's domestic market. Consequently, companies such as Amazon, Flipkart, and Meesho will continue to operate under the existing framework for domestic sales, functioning primarily as marketplaces connecting independent sellers with consumers.