Introduction
The Ministry of Commerce and Industry has circulated a note inviting views from various central government departments on a proposal to permit foreign direct investment (FDI) in the inventory-based model of e-commerce for exclusively export purposes, an official said.
The proposal aims to enhance India’s exports without affecting the businesses of small retailers.
The country’s current FDI policy does not permit overseas investment in the inventory-based model of e-commerce. It is 100% permitted through the automatic route in firms that operate only under a marketplace model, like Amazon and Flipkart.
The initiative is to allow e-commerce entities in the inventory-based model of e-commerce ,specifically for the export of goods and products manufactured and produced in India, in conformity with the existing FDI policy,the official said, as reported by Economic Times.
As per the FDI policy , the inventory-based model of e-commerce means an e-commerce activity where the inventory of goods and services is owned by e-commerce entities.
In contrast, the marketplace-based model of e-commerce involves an e-commerce entity providing a digital platform that facilitates transactions between buyers and sellers over an electronic network.
Experts say the policy focuses on the sale of these goods within the domestic market rather than for exports.
The FDI policy further states that an e-commerce entity operating a marketplace shall not own or control the inventory , i.e, goods offered for sale. Any ownership or control over the inventory would categorize the business as an inventory-based model.
The proposal was recommended by the Directorate General of Foreign Trade (DGFT)and is currently being examined by the Department for Promotion of Industry and Internal Trade (DPIIT).
The matter under consideration was mentioned by Commerce and Industry Minister Piyush Goyal last month. He further stated that if such e-commerce firms wish to maintain inventory for exports, then ‘I think we have no objection to that.”
The proposal is significant because the government is exploring ways to enhance exports through e-commerce. It is working on initiatives such as setting up e-commerce export hubs.
According to estimates, the country’s e-commerce exports currently stand at USD 2 billion compared to China’s staggering USD 350 billion. The global e-commerce trade is about USD 800 billion and is estimates to reach USD 2 trillion by 2030.
According to the report of the economic think tank GTRI, India’s e-commerce exports have the potential to reach USD 35 billion by 2030, but banking issues prevent growth and increase operational costs.
The e-commerce industry of India is driven primarily by small businesses that export products valued between USD 25 and USD 1000. The popular items include Handicrafts, art , books , ready-made garments , imitation jewellery, gem and jewellery, home decor, ayurveda products, and sports goods.
India has set an ambitious target of achieving USD 1 trillion of merchandise exports by 2030. In this context, cross-border e-commerce trade has been identified as a source to meet this objective.
Conclusion
The proposal to allow FDI in the inventory-based e-commerce model for exports could significantly boost India’s e-commerce exports and global competitiveness. It aims to help small businesses access foreign markets and support the national goal of achieving USD 1 trillion in merchandise exports by 2030. With proper safeguards to protect domestic retailers, this move can attract foreign investment and strengthen India’s position in the global digital trade ecosystem.
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