FDI In Inventory-Based Ecommerce For Exports: Commerce Ministry Seeks Comments

The commerce and industry ministry has reportedly circulated a note on allowing foreign direct investment (FDI) in inventory-based ecommerce models, solely for exports.

Citing a government official, PTI reported that the proposal is aimed at boosting India’s exports without denting small retailers and businesses. The ministry has sought views and comments on the note from stakeholders.

The proposal has been circulated by the Directorate General of Foreign Trade (DGFT) and is being examined by the Department for Promotion of Industry and Internal Trade (DPIIT). 

Currently, India prohibits 100% FDI in inventory-led ecommerce but is allowed in ecommerce platforms which are operating as marketplaces.

Under an inventory-based ecommerce model, the company owns the inventory, stocks it in its warehouses, and sells directly to customers, like BigBasket. On the contrary, the marketplace model allows ecommerce companies to connect multiple sellers to customers via its platform. However, the platform does not own inventory. Amazon and Flipkart operate on a marketplace model.

Notably, Amazon and Flipkart have come under the radar of Indian authorities for alleged violations of FDI norms in the past.

In August this year, the commerce ministry held discussions with leading ecommerce companies, logistics providers, and trader associations to explore pilot projects aimed at enabling global online platforms to directly source products from Indian sellers for resale overseas.

Ecommerce giant Amazon was said to be pushing the ministry to ease FDI rules to enable it to export products from India. However, several retail bodies expressed concerns that this can harm small Indian businesses as companies like Amazon and Flipkart could continue offering deep discounts and favour certain large sellers.

Last week, Amazon said that its cumulative exports from India between 2015 and 2025 crossed the $20 Bn mark. The company has set a target of exporting goods worth $80 Bn from India by 2030.

It is also pertinent to note that the key players in the rapidly growing quick commerce segment in India have also moved to inventory-based models or are mulling doing so. Eternal, after capping foreign ownership in the company to 49.5%, pivoted its quick commerce arm Blinkit to an inventory-led model. Meanwhile, Swiggy cofounder and group CEO Sriharsha Majety said last week that moving to an inventory-led model is inevitable for Instamart.

Overall, the Indian ecommerce market is projected to grow from $125 Bn in 2024 to $345 Bn in 2030. As per an EY report, ecommerce exports from India stood at between $4 Bn to $5 Bn in FY23, which was merely 0.9% to 1.1% of India’s total merchandise exports.