3 min readNew DelhiJul 23, 2026 07:17 PM IST
The Department for Promotion of Industry and Internal Trade (DPIIT) on Thursday permitted foreign direct investment (FDI) in the inventory-based model of e-commerce, a step that is aimed at boosting exports. This also comes a day before the US is expected to replace 10% global tariffs under Section 122 with new tariffs. The US has currently proposed a 12.5% tariff on India for importation of goods that are deemed to be produced through forced labour.
A section of MSMEs had been petitioning the government to allow FDI in the inventory-based model as it could help ease the compliance burden. With this move, Indian manufacturers would potentially avoid tedious paperwork on an individual basis, which could be better handled by large e-commerce players like Amazon and Walmart-owned Flipkart, industry sources said.
“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. An e-commerce entity is permitted to engage in an inventory-based model of e-commerce exclusively for the export of goods or products manufactured and produced in India as per the applicable provisions of the Foreign Trade Policy 2023,” DPIIT said in an order Thursday.
Before this move, 100% FDI was allowed under the automatic route in the marketplace model of e-commerce, but FDI was not permitted in its inventory-based model. Under the inventory-based model of e-commerce, inventory of goods and services can be owned by e-commerce entities and sold directly to consumers. The marketplace-based model, by contrast, only allows e-commerce companies to have a digital and electronic network to act as a facilitator between buyer and seller.
Small firms face compliance burden
“As per the Consolidated FDI Policy Circular of 2020, FDI is permitted in Business to Business (B2B) e-commerce and the marketplace model of e-commerce. However, FDI is not permitted in Business to Consumer (B2C) e-commerce and the inventory-based model of e-commerce where inventory of goods and services is owned by the e-commerce entity and is sold to the consumers directly,” DPIIT said.
India’s e-commerce industry is primarily dominated by small businesses that export products valued between Rs 2,500 and Rs 1,00,000, with popular items including handicrafts, art, books, ready-made garments, gems and jewellery.
Experts said that Indian exports through e-commerce currently stand at only $5 billion, whereas China’s exports have reached $300 billion. According to a report by the think tank GTRI, the country’s e-commerce exports have the potential to grow at a faster pace than its IT exports did in the early 2000s. But despite this potential, India’s current e-commerce export numbers remain far below expectations.
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“India’s current e-commerce export provisions are a patchwork of rules framed for regular B2B exporters. This creates an enormous compliance burden on small firms, and India needs to address all such issues in one place. To address such needs, the report recommends that the Indian government issue a separate e-commerce export policy. E-commerce policies in China, Korea, Japan, Vietnam, etc., have helped many firms sell globally,” it said in the report.
