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News: The Government allowed Foreign Direct Investment in inventory-based e-commerce entities exclusively for exports of goods manufactured and produced in India.
About FDI in Inventory-based E-commerce Models
- Two Models of E-commerce in India: India’s FDI policy has traditionally distinguished between two models of e-commerce:
- Inventory-based Model: The e-commerce entity owns the inventory of goods and sells them directly to consumers.
- Marketplace-based Model: The e-commerce entity acts only as an intermediary that connects independent sellers with buyers without owning the inventory.
- Key Features of New Policy:
- Export-only FDI: The policy permits 100% FDI in inventory-based e-commerce entities exclusively for exports of goods manufactured or produced in India.
- Domestic Restriction: The existing ban on foreign-funded inventory-based Business-to-Consumer (B2C) e-commerce for domestic retail remains unchanged.
- Support to Manufacturers: The policy aims to provide Indian manufacturers, particularly MSMEs and businesses located in Tier-II and Tier-III cities, with easier access to international markets.
- Policy Clarity: The amendment clarifies that inventory restrictions apply only to domestic retail trade and not to export-only operations.
Current FDI Provisions
- Marketplace Model: Since 2016, 100% FDI under the automatic route has been permitted in marketplace-based e-commerce.
- Inventory-based Domestic Trade: FDI remains prohibited in inventory-based e-commerce for domestic retail sales.
- Business-to-Business (B2B): FDI has already been permitted in e-commerce entities engaged in B2B operations since 2000.
