Government announced that foreign-funded e-commerce companies will be allowed to operate an inventory-based model exclusively for exports purposes, relaxing long-standing restrictions under the foreign direct investment (FDI) policy. The Department for Promotion of Industry and Internal Trade (DPIIT) on Wednesday reviewed the FDI policy for the e-commerce sector, and proposed that restrictions applicable to inventory-based e-commerce and business-to-consumer (B2C) sales will not be allowed to avail the relaxation as this move is particularly for exports purposes.
“In order to facilitate greater exports through easier and increased access of global markets by Indian sellers, the extant FDI Policy has been reviewed and it is decided that the restrictions on inventory-based model of e-commerce shall not apply in case of exports of domestically manufactured and/or produced goods/products,” DPIIT mentioned in the statement.
Under the existing Consolidated FDI Policy of 2020, FDI is permitted only in business-to-business (B2B) e-commerce and the marketplace model in India, where the platform has minimal intervention in the transactions between buyers and sellers. However, foreign investment is prohibited in inventory-based e-commerce, where the platform sells directly to consumers.
India permits 100% FDI in the marketplace model but prohibits foreign investment in the inventory model because it effectively allows foreign companies to enter multi-brand retail, a sector where FDI has remained tightly restricted.
The Ministry clarified that such exports will have to comply with the Foreign Trade Policy (FTP) 2023, the Handbook of Procedures (HBP), and the Foreign Exchange Management (Export of Goods and Services) Regulations.
Meanwhile, Amazon has welcomed the decision, saying that the initiative empowers tier 2 and tier 3 manufacturers to go global and establish Brand India on the world stage. “This enabling amendment unlocks opportunities for regional manufacturers and SMEs, allowing us to better serve seller partners and contribute meaningfully to India's export-led growth strategy,” says an Amazon spokesperson.
With the ease in FDI norms for inventory-based model of e-commerce, India is expected to have more global e-commerce companies as they will have more flexibility in sourcing, warehousing and shipping Indian-made products to overseas markets without being constrained by domestic FDI restrictions governing inventory ownership.
