To encourage participation of MSMEs in global e-commerce exports, the Directorate General of Foreign Trade (DGFT) has proposed introducing an inventory-based e-commerce export model. Under this model, third-party export entities would hold inventory and manage backend processes on behalf of MSMEs.
To bring this model into operation, DGFT has also suggested a few amendments to e-commerce FDI regulations, mainly reviewing the current restriction on inventory-based e-commerce for this export-only carve-out.
In the proposal, DGFT emphasized that less than 10% of MSMEs selling online domestically participate in global e-commerce exports, primarily due to the complexity of documentation, compliance requirements, packaging standards, limited expertise, and high logistics costs.
According to the draft framework, the model will require that export-only inventory held by export entities must be exclusively for exports (Export Inventory) and cannot be sold or diverted into the domestic tariff area (DTA).
Any diversion would be considered a contravention, which would attract penalties. Under this model, only goods manufactured or produced in India and procured from domestic, GST-registered MSME sellers will qualify.
On the other hand, the export entities must also establish internal grievance redressal systems to resolve all complaints from sellers within 15 working days. Unresolved issues may be escalated to DGFT, which must provide a resolution within 30 days.
A key safeguard for MSMEs is the mandatory pass-through of export-linked benefits. While export entities will have the rights to claim incentives such as GST refunds, duty drawback, and RoDTEP, they must also pass these benefits on to MSME sellers on a pro-rata basis.
Designated export entities would serve as intermediaries, handling paperwork, logistics coordination, and also managing product returns and their refunds. They will be able to access export-related incentives, with government mechanisms in place to ensure that a share of these benefits reaches MSMEs directly.
Moreover, the DGFT has also proposed strict penalties for non-compliance, such as inventory diversion or delayed settlement of benefits. Violations could result in suspension of DGFT registration, forfeiture of incentives, debarment from Foreign Trade Policy (FTP) schemes for a minimum of two years, and penalties of up to 200% of the undue benefit claimed.
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