India Considers Allowing Foreign Direct Investment in E-commerce for Export Operations

The Indian government, through its Commerce and Industry Ministry, is circulating a proposal to allow foreign direct investment (FDI) in the inventory-based e-commerce model. This significant policy consideration, initiated by the Directorate General of Foreign Trade (DGFT) and examined by the Department for Promotion of Industry and Internal Trade (DPIIT), is exclusively for export activities.

Currently, India's Foreign Direct Investment (FDI) policy prohibits foreign investment in the inventory-based e-commerce model, where the e-commerce entity owns the goods it sells. However, 100% FDI is permitted in marketplace-based models, like those operated by Amazon and Flipkart, which act as platforms connecting buyers and sellers without holding inventory.

The new proposal suggests permitting e-commerce entities to hold inventory, but only for the purpose of exporting goods manufactured or produced within India. Experts point out that existing FDI norms primarily govern domestic sales and create ambiguity for companies focused solely on international e-commerce.

Commerce and Industry Minister Piyush Goyal has confirmed that the proposal is under active consideration, stating that the government has no objection if e-commerce firms wish to hold inventory specifically for exports. E-commerce industry stakeholders have also urged for a revision of FDI policy to facilitate smoother cross-border trade.

This initiative aligns with the government's broader goal of expanding India's export footprint and achieving a merchandise export target of $1 trillion by 2030, with cross-border e-commerce identified as a key channel. India's current e-commerce exports are valued at around $2 billion, a stark contrast to China's estimated $350 billion. The Global Trade Research Initiative (GTRI) projects India's e-commerce exports could reach $350 billion by 2030 if regulatory and operational hurdles are addressed.

Impact: This policy change has the potential to significantly boost India's export volumes and foreign exchange earnings. It could create new opportunities for Indian manufacturers, especially Small and Medium Enterprises (SMEs), to access global markets more efficiently. Sectors supporting exports, such as logistics, warehousing, and packaging, are also expected to benefit. The move aims to leverage e-commerce for export growth without directly disrupting the domestic retail landscape. Rating: 7/10

Difficult terms: FDI (Foreign Direct Investment): Investment made by a company or individual from one country into business interests located in another country. Inventory-based model: An e-commerce model where the company selling goods owns the inventory it offers to customers. Marketplace model: An e-commerce model where a company provides an online platform for third-party sellers to list and sell their products directly to consumers. Directorate General of Foreign Trade (DGFT): An authority under the Ministry of Commerce and Industry, Government of India, responsible for the promotion and facilitation of foreign trade. Department for Promotion of Industry and Internal Trade (DPIIT): A department under the Ministry of Commerce and Industry, Government of India, responsible for policy formulation and implementation related to industrial development and internal trade. Global Trade Research Initiative (GTRI): An organization that conducts research and provides insights on global trade and economics.