FDI Permitted in Inventory-Based E-commerce for Export of Indian Goods
Updated: 1 day ago
India's foreign direct investment ("FDI") policy on e-commerce has long sought to balance foreign investment with the protection of domestic retail. A central feature of this balance has been the distinction between the marketplace and inventory-based models.
FDI was permitted in marketplace e-commerce, where the platform merely facilitated transactions between buyers and sellers. By contrast, FDI has not been permitted in inventory-based e-commerce for domestic B2C retail, where the e-commerce entity owns the inventory and sells directly to consumers. This distinction has shaped not only regulatory compliance but also the way businesses have structured their operations in India. Marketplace models became the preferred route for foreign investors, with warehousing, procurement and distribution arrangements designed to remain within the contours of the policy.Against this backdrop, the government has now introduced a targeted exception. Press Note No. 3 (2026 Series), issued by the Department for Promotion of Industry and Internal Trade on July 23, 2026 (“PN3”), permits e-commerce entities to undertake an inventory-based model exclusively for the export of goods manufactured or produced in India. In doing so, it removes the existing restrictions on inventory-based e-commerce only for such export activities, while leaving the broader domestic framework untouched.The amendment is concise, but its implications merit closer consideration.
Press Note 3 – The New Changes
i. PN3 permits an e-commerce entity with FDI to operate an inventory-based model exclusively for the export of goods manufactured or produced in India. This allows a foreign-funded e-commerce entity to purchase Indian-made goods, hold them as inventory and sell them directly to customers outside India.
ii. These exports must be carried out in accordance with the Foreign Trade Policy, 2023, the Handbook of Procedures, and all applicable foreign exchange regulations governing exports.[1]
iii. This is a significant change from the earlier framework, where e-commerce entities with foreign investment were generally allowed to operate only as marketplace platforms and were not permitted to own the inventory sold through their platforms.
iv. Under the framework, eligible e-commerce entities may undertake export-only inventory operations through a registered Exporter-on-Record (“EOR”). The EOR procures goods from Indian Sellers-on-Record (“SORs”) against confirmed overseas orders, undertakes exports in its own name, and assumes responsibility for export operations as well as compliance with destination-country requirements.[2]
Domestic E-Commerce Remains Unchanged
i. The relaxation introduced under PN3 applies only to exports. It does not allow e-commerce entities with foreign investment to adopt an inventory-based model for sales to customers within India. As a result, the existing restrictions on FDI in inventory-based B2C e-commerce remain unchanged for domestic sales.
ii. Businesses engaged in both, export and domestic operations will need to clearly separate the two business models. Inventory meant for export should be kept distinct from domestic marketplace operations, with strong inventory tracking systems and internal controls in place to ensure that export inventory is not diverted to the domestic market in violation of the FDI framework.[3]
Benefit of the Reform
i. The reform aims to make it easier for Indian manufacturers and sellers to access global markets. By allowing foreign-funded e-commerce platforms to directly purchase and export Indian-made goods, it can reduce the operational and compliance burden on individual sellers.
ii. It also gives large e-commerce platforms greater flexibility to build export-focused supply chains, including procurement, inventory management and fulfilment. For Indian manufacturers, especially micro, small and medium enterprises (MSMEs), this provides a simpler way to reach overseas customers through established global platforms.
iii. The reform aims to promote exports by helping Indian manufacturer’s access global markets, while continuing to maintain the existing restrictions on foreign-funded inventory-based e-commerce for domestic sales.
iv. However, the changes will come into effect only after the required notification is issued under the Foreign Exchange Management Act, 1999 (FEMA). Until then, the existing FDI restrictions on inventory-based e-commerce will remain in force.
Looking Ahead
The introduction of the inventory-based cross-border e-commerce export framework marks a significant and targeted reform in India’s FDI and foreign trade regime. By carving out a specific exception for export-oriented inventory models, the government hasacknowledged that facilitating exports warrants a different regulatory approach from governing domestic retail. That distinction may appear narrow today, but it has the potential to influence future investment strategies, operational structures and cross-border business models.
Whether this amendment represents the first step towards a broader evolution of India's e-commerce policy remains to be seen. For now, however, PN3 signals a clear policy preference: facilitate foreign capital where it can help Indian-made goods reach global markets, while retaining the existing guardrails around domestic inventory-led retail.
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