India eases FDI rules for e-commerce exports

India has allowed foreign direct investment (FDI) in inventory-based e-commerce businesses that export domestically manufactured goods, relaxing a longstanding restriction as the government seeks to expand online shipments by Indian producers.

The Department for Promotion of Industry and Internal Trade (DPIIT) amended the country’s FDI policy on Thursday, 23 July, to permit foreign-funded e-commerce companies to purchase, hold and directly export goods made in India.

The relaxation applies only to exports. Companies with foreign investment will remain barred from using the inventory-led model to sell goods to consumers in India.

Under an inventory model, the e-commerce company owns the products being offered for sale and earns revenue when it sells them.

This differs from the marketplace model, in which a platform connects independent buyers and sellers without owning the goods.

India allows 100% FDI under the automatic route in marketplace e-commerce, but has generally prohibited foreign investment in inventory-based online retail because of concerns that large overseas-funded companies could undercut smaller domestic traders.

The revised policy creates a narrow exception for exports, allowing foreign capital and global e-commerce networks to be used without reopening the more politically sensitive domestic retail market.

The government said the companies would be permitted to undertake inventory-based e-commerce for the export of goods manufactured in India, subject to the Foreign Trade Policy and rules under the Foreign Exchange Management Act.

The change could benefit global platforms and specialist export businesses seeking greater control over pricing, warehousing, quality checks, packaging and overseas delivery.

Under the marketplace system, platforms depend on individual sellers to manage inventory and fulfil orders. That structure can make it harder to guarantee uniform quality, maintain supplies or meet delivery deadlines in foreign markets, analysts said.

Allowing exporters to own inventory could help them aggregate goods from small manufacturers, standardize products and build stocks closer to shipping hubs before selling them abroad.

The policy may also encourage foreign companies to establish export-focused procurement and fulfilment operations in India.

The government has been seeking to increase e-commerce exports, particularly by micro, small and medium-sized enterprises, artisans and producers that struggle to reach customers outside India through conventional distribution networks.

India’s online exports remain small compared with China’s, despite the country’s large manufacturing base and growing digital commerce market. Exporters have cited compliance requirements, customs procedures, international returns, payment settlement and high logistics costs as major obstacles.

The FDI relaxation does not by itself resolve those problems, but it gives platforms greater freedom to build export supply chains around Indian products.

Companies could, for example, purchase goods from Indian manufacturers, inspect and package them at centralized warehouses and list them directly on international websites. They would also carry the commercial risk if the products were not sold.

The rule change could be particularly relevant for categories such as clothing, footwear, jewelry, home furnishings, handicrafts, beauty products and packaged consumer goods, where India has a large base of smaller producers but fragmented distribution.

It may also help Indian manufacturers that lack the resources to manage advertising, fulfilment, customer service and regulatory compliance across several overseas markets.

The government had been considering the change for several months while attempting to ensure that an export exemption was not used to route foreign-funded inventory back into India’s domestic market.

Officials had examined safeguards including separate business structures and transaction systems for exports.

The final implementation framework will therefore be important. Authorities will need to determine how goods, payments and accounts are separated and how companies prove that inventory purchased under the exemption was sold outside India.

The revision does not permit a foreign-funded e-commerce company to buy products, hold them as inventory and sell them directly to Indian consumers.

Foreign-owned platforms operating in the domestic market must continue to function as marketplaces and comply with restrictions intended to prevent them from controlling sellers or inventory.

Those rules have repeatedly attracted scrutiny because large platforms often provide warehousing, logistics, advertising and other services to preferred merchants even when they do not formally own the goods.

Traditional retailers have argued that such arrangements allow multinational companies to exercise indirect control over online inventories and offer discounts that smaller sellers cannot match.

The export carve-out allows the government to liberalize one part of the sector without reopening that dispute.

Its effectiveness will depend on whether global platforms see enough demand for Indian products to invest in dedicated export inventories and whether customs and logistics systems can support a larger volume of smaller cross-border orders, analysts added.