The Indian government is exploring a significant change in its foreign direct investment (FDI) policy by allowing overseas investment in the inventory-based model of e-commerce, specifically for goods manufactured or produced in India and exported abroad. This marks a potential shift from the current regime, which permits 100% FDI under automatic route only in the marketplace model of e-commerce.

What’s Changing and Why

Under existing rules, e-commerce entities that own and manage inventory (rather than merely acting as a platform connecting buyer and seller) are restricted from receiving foreign investment when operating domestically. The proposal under consideration would grant FDI approval for such inventory-based entities only for export purposes, thereby aligning policy with India’s push to boost cross-border e-commerce.

The move is aimed at increasing India’s global e-commerce export capabilities currently narrowly positioned compared to global peers and leveraging foreign capital and expertise to scale exports from Indian manufacturers and exporters. Estimates suggest India’s e-commerce export potential could reach USD 350 billion by 2030.

Implications for Industry, Investors and Advisors

For exporters, manufacturers and e-commerce businesses, this adjustment could open new avenues:

• Inventory-based e-commerce with foreign investment may enable larger scale operations, improved logistics, and global market reach.

• For investors and wealth managers, companies operating or positioned to leverage this change may gain a strategic edge especially those tied to exports, supply-chain optimisation and e-commerce infrastructure.

• Advisors should note the importance of understanding how regulatory changes can alter sector dynamics and corporate growth prospects, especially in export-oriented and platform-driven businesses.

At the same time, the policy is being designed to safeguard the interests of small and traditional retailers by limiting the change to exports only not domestic sales hereby maintaining balance in the ecosystem.

Strategic Considerations & Risk Factors

While the proposal is promising, a few caveats are worth monitoring:

• The change is at consultation stage, and final rules – such as eligibility, conditions, and implementation timelines are yet to be defined.

• Export-only allowance means companies must align closely with goods “manufactured or produced in India” and export channels domestic sales under the inventory model remain restricted.

• Infrastructure, regulatory clarity, logistics and overseas market access will still determine how impactful the change ultimately becomes.

For portfolio strategy, these factors suggest opportunity but with discipline. Long-term positions in export-enablement, e-commerce logistics, and digital export platforms may benefit, but valuation discipline and diversification remain key.

Source: The Economic Times