SYLLABUS
GS-3: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
Context: The Department for Promotion of Industry and Internal Trade (DPIIT) has amended the Foreign Direct Investment (FDI) Policy to permit foreign-funded e-commerce entities to operate an inventory-based model exclusively for exports of goods manufactured and/or produced in India.
Key Highlights of the Decision
- DPIIT has reviewed the existing FDI Policy and relaxed FDI norms for the inventory-based model of e-commerce exclusively for exports.
- A new provision has been inserted in the FDI Policy stating: An e-commerce entity is permitted to engage in an inventory-based model of e-commerce exclusively for the export of goods/products manufactured and/or produced in India.
- The relaxation applies only to exports of domestically manufactured and/or produced goods and does not apply to domestic retail sales.
- Existing restrictions on Business-to-Consumer (B2C) and inventory-based e-commerce continue for the domestic market.
- Export operations must comply with the Foreign Trade Policy (FTP), 2023, Handbook of Procedures (HBP) and Foreign Exchange Management (Export of Goods & Services) Regulations, 2015, as amended from time to time.
- The decision will take effect from the date of notification under the Foreign Exchange Management Act (FEMA).
About FDI in E-commerce
- Existing FDI Policy: India permits 100% Foreign Direct Investment (FDI) under the automatic route in Business-to-Business (B2B) e-commerce and the marketplace model of e-commerce.
- FDI is not permitted in Business-to-Consumer (B2C) e-commerce and the inventory-based model of e-commerce.
- Marketplace Model: In the marketplace model, the e-commerce entity provides a digital platform connecting buyers and sellers.
- The platform acts only as a facilitator and does not own inventory.
- Goods are sold by independent sellers through the platform.
- Inventory-Based Model: The e-commerce entity owns the inventory of goods and services.
- The platform directly sells goods to consumers.
- FDI was not permitted in this model because it effectively allows foreign companies to enter multi-brand retail, a sector where FDI has remained tightly restricted.
- The restriction was originally introduced to regulate domestic retail trading and protect small retailers.
Why was this Change Needed?
- To Facilitate Greater Exports: The amendment enables easier access to global markets for Indian sellers, supporting the Government’s target of US$1 trillion merchandise exports by 2030.
- To Reduce Compliance Burden on MSMEs: Large e-commerce companies can handle export documentation, paperwork, testing and labelling, helping MSMEs, of which only about 12,000 currently undertake e-commerce exports.
- To Meet Emerging Global Traceability Requirements: Large e-commerce companies can help MSMEs comply with new traceability regulations, including the European Union’s Digital Product Passport (DPP).
- To Address US Tariff Challenges: The amendment comes ahead of the United States replacing the 10% global tariff and proposing a 12.5% tariff on certain goods imported from India, strengthening the need to boost export competitiveness.
- To Provide Policy Clarity: The amendment clarifies that inventory-based restrictions do not apply to export operations, reinforcing policy predictability while preserving domestic e-commerce safeguards.
Significance
- Boost to MSME Exports: Enables MSMEs to access global markets through large international e-commerce platforms while reducing the burden of paperwork, testing, labelling and export compliance.
- Supports Manufacturing and Export Targets: Supports the Government’s objective of increasing manufacturing’s share in GDP from around 17% to 25% by 2035 and achieving US$1 trillion merchandise exports by 2030.
- Improves Ease of Doing Business: Removes policy uncertainty and reinforces policy predictability for foreign investors.
- Supports Tier-II and Tier-III Manufacturers: Enables regional manufacturers and SMEs to reach global customers and strengthen Brand India.
- Better Integration with Global Supply Chains: Provides greater flexibility in sourcing, warehousing and shipping Indian-made products to overseas markets.
- Strengthens India’s Export-led Growth Strategy: Expands the role of global e-commerce platforms in increasing exports of domestically manufactured goods.