FDI In E-Commerce: India's Export-Focused Carve-Out Under Press Note 3 (2026 Series)

An Analysis of the DPIIT Amendment and Its Legal Implications

On 23 July 2026, the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry, issued Press Note No. 3 (2026 Series) a document whose brevity belies the significance of what it achieves. In a little over two pages, the Government of India has quietly dismantled one of the most longstanding restrictions in its FDI policy architecture: the blanket prohibition on foreign investment in inventory-based e-commerce. The caveat, however, is precise and deliberate: the permission is confined exclusively to exports of goods manufactured or produced in India.

This article examines the legal text of the amendment, situates it within the decade-long regulatory history of FDI in Indian e-commerce, analyses the multi-instrument framework through which it has been operationalised, and identifies the open questions that practitioners and businesses will need to navigate in the months ahead.

I. The Regulatory History: A Decade of Holding the Line

To appreciate what Press Note 3 (2026 Series) has done, one must first understand what it has departed from. India's FDI policy on e-commerce has, since 2016, been built around a fundamental binary: the marketplace model on one side, and the inventory-based model on the other.

Press Note 3 of the 2016 Series introduced formal definitions of these two models into Indian FDI policy for the first time. Under the marketplace model, the e-commerce entity acts purely as a facilitator, providing an information technology platform that connects buyers and sellers without owning any inventory. This model attracted 100% FDI under the automatic route. The inventory-based model, in contrast, where the e-commerce entity owns the goods and sells them directly to consumers, was expressly prohibited from receiving FDI.

The policy rationale was straightforward: permitting foreign capital to fund inventory-owning B2C platforms risked concentrating market power in the hands of deep-pocketed foreign entities, undercutting the millions of small retailers and traders that form the backbone of Indian domestic commerce.

In practice, however, the marketplace model proved porous. Large foreign-funded platforms engineered structures through affiliated sellers, inventory-buying agreements, exclusive arrangements, and preferential pricing that effectively replicated inventory-based control while maintaining the legal fiction of a marketplace. The most prominent example was Amazon's association with Cloudtail India, a joint venture through which the platform exercised considerable influence over inventory and pricing while technically operating as a marketplace entity.

Press Note 2 of the 2018 Series responded to these structural workarounds by tightening the anti-avoidance provisions significantly. The revised framework introduced the following key restrictions:

• A marketplace entity would be deemed to own inventory if more than 25% of a seller's purchases were sourced from the marketplace entity or its group companies: the "control test" replacing the earlier "ownership only" test;
• E-commerce entities with FDI were barred from holding equity in sellers listed on their own platforms;
• Exclusive arrangements between platforms and sellers were prohibited to prevent preferential treatment;
• Platforms were prohibited from influencing the prices of goods sold by sellers on their platforms;
• Annual statutory auditor compliance certificates were mandated for all FDI-receiving e-commerce entities.

These restrictions were further entrenched in the Consolidated FDI Policy Circular of 2020 dated 15 October 2020. Under that policy, which remained the operative framework until the present amendment, FDI was permitted in B2B e-commerce and the marketplace model, but remained categorically prohibited in B2C e-commerce and the inventory-based model. The legal footing for this prohibition was provided by Schedule I and Schedule II of the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules), which translated the FDI policy into enforceable FEMA regulations.

II. The Amendment: What Press Note 3 (2026 Series) Actually Does

Press Note 3 (2026 Series), inserts a new Para 5.2.15.2.5 into the Consolidated FDI Policy. The text of the inserted provision is worth reproducing:

"Para 5.2.15.2.5 Inventory-Based Model of E-Commerce Exclusively for Exports:(i) An e-commerce entity is permitted to engage in inventory-based model of e-commerce exclusively for the export of goods/products manufactured and/or 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.(ii) The restrictions on B2C and the inventory-based model of e-commerce stipulated under the provisions of Para 5.2.15.2.1 to Para 5.2.15.2.4 above, shall not apply to the export of goods/products through e-commerce as permitted under Para 5.2.15.2.5(i) above."

The architecture of this provision is revealing. It does not repeal or dilute the existing restrictions in Paras 5.2.15.2.1 to 5.2.15.2.4 as those remain fully operative for all domestic commerce. What it does instead is carve out a specific, bounded exception: a foreign-invested e-commerce entity may own inventory, provided that inventory is comprised exclusively of goods manufactured or produced in India, and the entirety of sales under that model is directed to buyers outside India.

The Press Note specifies that the decision takes effect from the date of the applicable FEMA notification, a qualification that carries significant legal consequences, as discussed below.

III. The Three-Instrument Architecture

Press Note 3 (2026 Series) is not a standalone document. It forms the apex of a three-instrument regulatory architecture, the other two being issued by the Directorate General of Foreign Trade (DGFT):

• DGFT Notification No. 27/2026-27 amends the Foreign Trade Policy 2023 by inserting a new Section D (Paras 9.13–9.19) titled the "Inventory-based Cross-border E-Commerce Facilitation Framework." This instrument defines the substantive architecture: the roles of the Exporter-on-Record (EOR) and Seller-on-Record (SOR), the conditions for title to pass, payment timelines, and the prohibition on diverting returned goods to the domestic market.
• DGFT Public Notice No. 25/2026-27 amends the Handbook of Procedures 2023 by inserting Paras 9.03–9.07, which set out the procedural requirements: EOR registration with DGFT, inventory management standards, seller transparency obligations, a cap of 10% on administrative charges recoverable from sellers against export rebates and refunds, a 30-day timeline for disbursing duty drawback and RoDTEP proceeds, and a dispute resolution mechanism routed through DGFT Regional Authorities.

The framework as operationalised by the DGFT notifications runs on two central roles. The Exporter-on-Record is a separately incorporated legal entity holding a valid Importer Exporter Code and GSTIN and registered with DGFT that procures goods from Indian sellers and exports them to buyers located outside India. The Seller-on-Record is the Indian GST-registered entity that actually manufactures or produces the goods.

Key structural requirements of the framework include the following:

• Title to goods passes from the SOR to the EOR only against a confirmed export order from a buyer outside India speculative or pre-emptive inventory build-up is not permitted under the framework;
• Payment from the EOR to the SOR must occur within 7 days of acceptance of goods, and cannot be made contingent on the EOR actually receiving payment from the overseas buyer;
• Export rebates including duty drawback, RoDTEP, and RoSCTL must be apportioned to sellers by FOB value and disbursed within 30 days of receipt, with the administrative charge capped at 10% of the gross amount;
• Returned or rejected consignments may not, under any circumstances, be diverted into the domestic market;
• Independent CA/CMA compliance certificates are required annually, with record retention for five years;
• E-commerce entities wishing to operate through the EOR model must disclose their shareholding pattern and ownership or control relationship with the EOR entity at the time of DGFT registration.

IV. The Critical Gap: The FEMA Notification Has Not Yet Been Issued

The most significant legal reality that practitioners and businesses must internalise is this: as of the date of this writing, the FDI permission created by Press Note 3 (2026 Series) is not yet legally operative.

Press Note 3 expressly states that the decision "will take effect from the date of FEMA notification." The legal permission for foreign investment in India is ultimately housed in the NDI Rules, 2019, a statutory instrument made under the Foreign Exchange Management Act, 1999. The RBI's Master Direction on Foreign Investment in India (updated as recently as 15 June 2026) continues to provide that "Foreign investment is not permitted in Inventory based model of e-commerce." The relaxation has not yet been incorporated into that instrument.

This creates an unusual situation: the procedural and compliance architecture, EOR registration, seller transparency requirements, dispute resolution, is already in place through the DGFT instruments. DGFT has opened registration. But the underlying legal permission for the foreign capital that would flow through this route sits in a statute that has not yet been amended.

In practical terms, this means that until the FEMA notification is issued, a foreign-invested e-commerce entity that attempts to operate the inventory-based export model would technically be in contravention of existing FEMA regulations, regardless of what the FDI Policy Press Note says. The Press Note changes India's stated policy; the NDI Rules change the law. The two are not yet aligned.

V. Analysis: What the Amendment Gets Right and What It Leaves Open

A. The Export-Only Carve-Out Is Legally Coherent and Politically Durable

The restriction of the inventory-based permission to export transactions is, on reflection, well-designed. The policy concerns that animated the longstanding prohibition, displacement of small domestic retailers, preferential treatment of affiliated sellers, artificial price manipulation are concerns rooted in the domestic market. They lose force entirely when the inventory is earmarked for foreign buyers and the goods themselves are Indian-manufactured. The amendment does not contradict the policy logic of Paras 5.2.15.2.1 to 5.2.15.2.4; it simply identifies a scenario that falls outside the mischief those provisions were designed to address.

This explains the amendment's political durability. Small trader associations and domestic retail industry bodies have historically been the most vocal opponents of liberalisation in this space. A permission confined to exports and explicitly barring any diversion of returned inventory to the domestic market offers them no material grievance. The policy thus achieves an export promotion objective without disturbing the domestic market equilibrium that has been the legislative concern since 2016.

B. The Make in India Conditionality Is Both a Safeguard and a Constraint

The amendment conditions the permission on the goods being manufactured and/or produced in India. This is a deliberate alignment with the Make in India initiative and the government's broader export promotion agenda. India's e-commerce exports have remained stubbornly low (under US$5 billion) a fraction of China's roughly US$350 billion in cross-border e-commerce exports. The amendment is, in part, a response to this gap.

However, the conditionality also introduces definitional complexity. What constitutes goods "manufactured and/or produced in India"? The Press Note refers to the Foreign Trade Policy 2023 and HBP for applicable provisions, but the FTP and customs law apply distinct standards of "substantial transformation" and "rules of origin" that may not map neatly onto each other. Products that are assembled in India from imported components, or goods that are processed but not manufactured, could fall into interpretive grey zones. Until DGFT or DPIIT provides clarificatory guidance, this ambiguity will create compliance risk for entities seeking to operationalise the framework.

C. The Confirmed-Order Condition Limits Operational Flexibility

The requirement that title to goods must pass from the SOR to the EOR only against a confirmed export order is an important structural safeguard against the framework being used to replicate domestic inventory-based operations under an export label. However, from an operational standpoint, this requirement materially limits the fulfilment flexibility that makes inventory-based models commercially attractive. Large e-commerce platforms derive significant efficiency gains from maintaining pre-positioned inventory holding stock at fulfilment centres based on demand forecasting, rather than waiting for confirmed orders before taking title. The confirmed-order condition, as presently framed, would prevent that model in the export context.

Whether DGFT's operational framework as contained in the Handbook of Procedures provides sufficient flexibility to accommodate different e-commerce architectures particularly for perishable goods, fashion, or fast-moving consumer goods where demand forecasting drives inventory management remains to be seen.

D. The Structural Position of Amazon and Flipkart

The amendment is widely understood to be a response, at least in part, to advocacy by major global platforms. Amazon has publicly stated that its Global Selling programme has enabled over US$20 billion in cumulative e-commerce exports from India between 2015 and 2025, with a stated target of US$80 billion by 2030. Walmart-owned Flipkart is similarly positioned to benefit from the new route. Once the FEMA notification is issued, these platforms will be in a position to establish dedicated EOR entities, separately incorporated and registered with DGFT, to hold Indian-manufactured inventory earmarked for export markets.

Crucially, this structure is categorically different from the Cloudtail arrangement that drew regulatory scrutiny in prior years. Under the new framework, inventory ownership for exports is an explicit, disclosed, and regulated model, not a structure built through an affiliated seller operating within the formal constraints of the marketplace model. The transparency requirements, including mandatory disclosure of shareholding and control relationships at registration, are designed to ensure that the new route does not replicate the opacity that characterised earlier platform-affiliate structures.

VI. Broader Regulatory Context: The Policy Is Moving in a Coherent Direction

Press Note 3 (2026 Series) does not exist in a vacuum. It forms part of a broader regulatory repositioning that has been underway over the last two years. The introduction of the Foreign-Owned and Controlled Entity (FOCE) classification in May 2025 which treats any Indian entity with majority foreign ownership or control as a foreign entity for FDI compliance purposes addressed longstanding concerns about round-tripping and indirect FDI avoidance. Separately, the RBI's November 2024 framework for reclassifying FPI investments exceeding 10% in listed Indian companies as FDI has further closed portfolio-to-investment loopholes.

Taken together, the regulatory direction is clear: India is tightening the controls on domestic market access by foreign-funded entities while simultaneously creating calibrated, export-oriented pathways for foreign capital to support the internationalisation of Indian manufacturing and trade. Press Note 3 (2026 Series) is the most visible expression of this dual approach in the e-commerce sector.

VII. Conclusion

Press Note 3 (2026 Series) is a measured and technically well-constructed policy intervention. It resolves a long-acknowledged tension in Indian e-commerce regulation, between the desire to attract foreign investment in the country's export supply chain and the imperative to protect the domestic retail ecosystem, by drawing a sharp, legally defensible line between the two contexts.

The framework as a whole, anchored by the DPIIT Press Note and operationalised by the DGFT's FTP amendment and Handbook revisions, is the most detailed and structurally sophisticated regulatory architecture that India has produced for e-commerce exports. The seller payment protections, the anti-diversion provisions, the transparency requirements for EOR registration, and the dispute resolution mechanism collectively constitute a framework that is genuinely protective of Indian MSME sellers while enabling the kind of scaled fulfilment that global platforms require.

The immediate task for practitioners is twofold. First, to advise clients on the legal gap that exists until the NDI Rules are amended, the compliance architecture is ready, but the legal permission is not yet switched on. Second, to engage with the open interpretive questions: the "manufactured in India" definition, the confirmed-order requirement, and the boundary between export inventory and domestic inventory before they crystallise into disputes.

India's e-commerce exports have considerable ground to make up. At under US$5 billion, they represent a fraction of what the sector's scale could support. Whether this amendment provides the structural impetus to close that gap will depend substantially on how quickly the FEMA notification follows and how flexibly the framework is administered once it does.

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