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India permits foreign investment in inventory-based e-commerce exclusively for exports
In a landmark shift, India has opened the door for foreign investment in inventory-based e-commerce entities exclusively for exports of goods manufactured or produced in India. Press Note 3 of 2026, issued on July 23, 2026 (“Press Note 3”) by the Department for Promotion of Industry and Internal Trade (“DPIIT”) carves out an export-only exception to the longstanding prohibition on inventory-based Business to Consumer (“B2C”) e-commerce.
Background
The existing Consolidated FDI Policy Circular, 2020 (“FDI Policy”) specifies 2 (two) business models for e-commerce: (a) inventory-based model of e-commerce (where the goods are owned and sold by the e-commerce entity); and (b) marketplace-based model of e-commerce (where an information technology platform is provided by the e-commerce entity to act as facilitator between the buyer and seller).
While 100% Foreign Direct Investment (“FDI”) is permitted in business-to-business (B2B) e-commerce and the marketplace model of e-commerce, under the automatic route, FDI in inventory-based B2C e-commerce has remained prohibited since Press Note 2 (2018) (effective from February 1, 2019) since such activities were functionally considered akin to multi-brand retail trading. This restriction was intended to protect small retailers and ensure a level playing field by preventing foreign-funded e-commerce companies from directly owning and selling inventory in the Indian market.
Key features of the Press Note 3
By virtue of the Press Note 3, DPIIT has inserted a new provision in the FDI Policy to the effect that an e-commerce entity is permitted to engage in inventory-based model of e-commerce exclusively for the purposes of export of goods/products manufactured and/or produced in India, subject to the applicable provisions of the Foreign Trade Policy, 2023 and the Foreign Exchange Management (Export of Goods and Services) Regulations, 2015.
Press Note 3 has the following features:
- Scope is limited to exports: An e-commerce entity in B2C model with foreign investment may now hold and sell inventory, but exclusively for the export of goods/products manufactured and/or produced in India (e., to overseas buyers). This is a significant departure from the existing policy, as it effectively creates a carve-out from the long-standing prohibition on inventory-based models, albeit one that is limited to export transactions.
- The goods exported must be manufactured and/or produced in India: The use of the phrase ‘manufactured and/or produced in India’ is noteworthy, as it may encompass a broad range of activities, from full manufacturing to assembly, processing, or value addition. For reference, the FDI Policy provides that ‘manufacture’ means a change in a non-living physical object or article or thing: (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure.
- Domestic B2C inventory-based retailing remains prohibited: The exception does not dilute the restriction on inventory-based e-commerce directed at the Indian consumer. Sale to Indian consumers still requires entities with foreign investment to follow the marketplace-based model of e-commerce.
- Compliance: The export of goods/products manufactured and/or produced in India must comply with the Foreign Trade Policy, 2023, the Handbook of Procedures, and the Foreign Exchange Management (Export of Goods & Services) Regulations, 2015.
The changes are proposed to take effect from the date of the corresponding amendment to the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019.
Conclusion
This development is largely a response to the growing market demand by the Indian exporters. The micro, small and medium enterprises had long complained about cumbersome cross-border e-commerce export requirements, causing India’s e-commerce exports to remain stuck at moderate ground as compared to China’s mammoth export.
While the restriction on inventory-based e-commerce for the domestic market remains continued to safeguard small retailers, kiranas, and traders from the competitive dominance of large, well-capitalised, foreign-funded entities in India’s domestic retail space; the relaxation operates solely as an export-facing carve-out.
This move is expected to strengthen India’s e-commerce export ecosystem by enabling global platforms to procure, store, and ship Indian products more efficiently. The Government has set an ambitious target of achieving USD 200 billion (US Dollars two hundred billion) to USD 300 billion (US Dollars three hundred billion) in e-commerce exports by 2030. For e-commerce entities, this creates a first-mover opportunity; and platforms that establish export-oriented inventory infrastructure early may secure preferential supplier relationships and build logistics networks before the market becomes competitive.
E-commerce entities that currently operate under the marketplace model will need to evaluate whether transitioning certain product lines to the inventory-based export model offers commercial advantages, while simultaneously assessing the regulatory and operational costs of maintaining dual operating structures.
This Prism has been prepared by:
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Prakriti Jaiswal |
Rajul Bohra |
Aditya Vardhan Dayal |
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For more details, please contact km@jsalaw.com.
