Liberalisation Of FDI In The E-commerce Sector

In brief

In a significant liberalisation for FDI in the e-commerce sector, it now appears that the Government intends to lift the prohibition on inventory-based model of e-commerce for the exclusive purpose of boosting exports by domestic manufacturers and MSMEs, in line with the objectives of the Foreign Trade Policy 2023.

Presently, under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (‘NDI Rules’) and the FDI Policy, 2020 (‘FDI Policy’) issued by the Department for Promotion of Industry and Internal Trade (DPIIT), foreign direct investment (‘FDI’) is permitted up to 100% under the automatic route in B2B E-commerce operated through a marketplace model, whereby the e-commerce entity provides an information technology platform on a digital and electronic network for acting as a facilitator between buyers and sellers, without actually engaging in B2C themselves. However, FDI is prohibited in the inventory-based model of e-commerce, where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly.

In a significant liberalisation for FDI in the e-commerce sector, it now appears that the Government intends to lift the prohibition on inventory-based model of e-commerce for the exclusive purpose of boosting exports by domestic manufacturers and MSMEs, in line with the objectives of the Foreign Trade Policy 2023.

DPIIT Press Note

On 23 July 2026, the DPIIT issued Press Note 3 (2026 Series) (‘Ecommerce Press Note’), which proposes to amend the FDI Policy permit e-commerce entities to engage in the inventory-based model of e-commerce, exclusively for the purpose of export of domestically manufactured products.

The E-commerce Press Note proposes insertion of an additional provision (Para 5.2.15.2) in the FDI Policy to (i) permit e-commerce entities to engage in the 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 (FTP) read with the Handbook of Procedures (HPB) and the Foreign Exchange Management (Export of Goods & Services) Regulations, 2015, and (ii) exempt such export of goods / products through e-commerce from the restrictions on B2C and the inventory-based model of e-commerce prescribed under the provisions (Para 5.2.15.21 to Para 5.2.15.2.4) of the FDI Policy.

While the move represented a hard-fought victory for e-commerce entities like Amazon, which has been lobbying for FDI to be permitted in inventory-based e-commerce for over a decade, it raised concerns amongst domestic vendors, represented by bodies such as the Confederation of All India Traders (CAIT), who fear that in the absence of robust enforcement mechanisms, the liberalisation for exports would be prone to misuse by e-commerce entities for expanding into the domestic inventory-based retail market as well.

The E-commerce Press Note, being a policy statement of DPIIT, will take effect only once notified under the Foreign Exchange Management Act, 1999 (‘FEMA’) with consequent amendments to the NDI Rules.

DGFT Framework

Even while the proposed change to the FDI Policy pursuant to the Ecommerce Press Note is yet to take effect, the Directorate General of Foreign Trade (‘DGFT’) has already released a Notification on 5 August 2026 amending the FTP and introducing a framework for facilitating inventory-based cross border e-commerce, detailing eligibility conditions, operational obligations and inventory management requirements which should assuage the abovementioned concerns of domestic vendors (‘Facilitation Framework’). The key conditions / constructs (in addition to other administrative features) set out in the framework are as follows:

1. Exporter-on-Record (EOR): E-commerce entities (other than marketplace e-commerce entities) are eligible to carry out inventory-based export operations through a separate legal entity incorporated for that purpose, holding a valid IEC and GSTIN and registered with the DGFT as an EOR under the Facilitation Framework. At the time of registration or amendment as the EOR, the entity must disclose its shareholding pattern and the nature of its ownership or control relationship with the e-commerce entity. 
2. Seller-on-Record (SOR): Any entity registered in India under applicable Goods and Services Tax law may act as an SOR, supplying goods produced in India to EORs for the purpose of export to buyers located outside India.
3. Indian origin goods and inventory management: The SOR is responsible for ensuring and declaring the correct origin of goods in accordance with applicable laws and relevant origin criteria. The EOR is responsible for segregating and maintaining export inventory, and for maintaining a digital repository enabling identification, tracking and traceability of all export inventory in such manner as may be prescribed under the Handbook of Procedures.
4. Exclusive export purpose: EORs may only hold inventory for the exclusive purpose of export through e-commerce, and SORs may only supply goods against EOR’s confirmed export orders. The EOR is responsible for managing reverse logistics processes for returned or rejected consignments and cannot supply such consignments directly or indirectly in the domestic market.
5. Ineligible goods: Every kind of product may not be able to avail the liberalization from the inventory-based model – a list of ineligible goods may be notified by the DGFT from time to time.

Conclusion

The proposed liberalisation in the FDI policy enabling inventory-based e-commerce for export will benefit both e-commerce entities and Indian manufacturers, with the Facilitation Framework introduced under the FTP protecting the interests of domestic vendors in securing them from competition with e-commerce entities in the domestic inventory-based retail market. However, before undertaking any structural changes to avail the benefits of this liberalisation, which is still an evolving landscape, it would be advisable for e-commerce entities to await the FEMA notification providing force of law to this framework, and any further notifications in respect of the Facilitation Framework which may be issued by the DGFT (such as in respect of ineligible goods).

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