Unlocking FDI For 'Made In India' Exports: Analyzing New Framework For Inventory-Based E-Commerce

On 23rd July, the Indian government issued Press Note 3. of 2026 (PN 3/2026) carving out a limited but significant permission for foreign direct investment (FDI) in e-commerce entities holding inventory in Indian origin goods for export purposes. In an inventory-based model, e-commerce entities own inventory in goods and services offered on their platform and directly sell these to the customers. This is opposed to the marketplace-based model wherein the e-commerce entities do not own any inventory in goods and services sold, and only act as intermediaries or facilitators between buyers and sellers entering into transactions on their platforms.

Presently, 100% FDI via automatic entry route is permitted in the Business to Business (B2B) e-commerce segment whereas FDI is generally prohibited for the Business to Consumer (B2C) segment save for certain specific incremental carve-outs made by the government over time. For instance, FDI in the marketplace-based model of e-commerce was permitted through Press Note No. 3 of 2016 whose conditions were later revised in 2018. Now, vide PN 3/2026, FDI has been permitted for the inventory-based model of e-commerce with two important caveats, i.e., it is exclusively for undertaking export and it is only for goods manufactured or produced in India.

The Directorate General of Foreign Trade (DGFT) issued Notification No. 27/2026-27 on 5 August 2026 (DGFT Notification), operationalizing this change by making concomitant amendments to the Foreign Trade Policy, 2023 (FTP).

Separate legal entity: Paragraph 9.15 of the DGFT Notification on eligibility for holding of export inventory provides that an e-commerce entity, other than a market-place e-commerce entity, proposing to undertake export-only inventory operations may do so through an Exporter-on-Record (EOR) registered with the DGFT. Read with the definition of an EOR under Paragraph 9.13(i) of the DGFT Notification, this has two key implications: first, the e-commerce entity seeking to undertake export-only inventory operations cannot itself be a marketplace e-commerce entity, and second, such export-only inventory operations must be undertaken through a separately incorporated legal entity registered as the EOR, and not the directly by the e-commerce entity itself.

As a result, foreign players operating in the marketplace e-commerce segment cannot enter the inventory-based e-commerce segment for export through their pre-existing legal entity and will need to establish a separate legal entity (such as an affiliate or a subsidiary) for the same. This is the most substantial obligation placed upon big e-commerce players already operating under marketplace model, as it will entail the entire gamut of compliance involving incorporation and governance of a standalone company, obtaining registrations for doing business in India, and securing independent export-related registrations and banking arrangements.

At the same time, big foreign e-commerce platforms have several advantages compared to their Indian competitors, in terms of technology infrastructure, warehousing and logistics capabilities, branding, seller networks and customer support which can be leveraged at a group-company level to offset some of the infrastructure and cost duplication created by this requirement.

1. Obligations for holding and managing inventory of goods for export: EORs may sell goods procured from one or more Sellers-on-Record (SOR) to buyers located outside India, provided that the goods have been supplied against a confirmed export order from buyers located outside India. Paragraph 9.15(iv) expressly states that the title of goods shall not pass from the SOR to the EOR until there is a confirmed export order by the EOR to a buyer located outside India. Thereby, the DGFT Notification makes specific exception to the general rule under Section 19 of Sales of Goods Act 1930 (SoGA) that the parties may contract as to when title in the goods will pass from the seller to the buyer. The objective is to prevent any speculative build-up of inventory without confirmed export orders which may later be re-routed into the domestic market. It ties back to the strict segregation intended to be maintained between FDI for the cross-border and domestic inventory e-commerce segments, the latter continuing be prohibited under the FDI Policy.

Further, Paragraph 9.16 of the DGFT Notification states that the EOR must ensure the export inventory is identified and segregated, and maintained as export-designated stock. For record-keeping, the EOR must also maintain a digital repository enabling identification, tracking and traceability of all export inventory. This digital repository must include records relating to procurement and linkage with export documentation.

Crucially, the digital inventory is not a mere compliance requirement for ensuring proper inventory management by the EOR, but rather it is integral towards operationalizing the cross-border inventory-based e-commerce framework. It is designed to enable regulatory authorities to trace the specific export stock backwards to the domestic seller (whether the export inventory was procured from a registered SOR and backed by confirmed export order) and forward to the overseas buyer (whether the export inventory was actually exported and the relevant export documentation produced corresponds to such export inventory). It will also support determining the Indian origin of the goods and passing through of Export Rebates and Refunds to SORs (discussed below).

Apart from complying with the digital inventory requirements, the EOR will also need to ensure that there is no physical commingling of the export-designated stock with inventory that might otherwise be accessed for domestic sales. This is a significant risk if EOR is sharing warehousing, fulfilment, or logistics infrastructure with an affiliated e-commerce marketplace entity. The EOR will need to ensure clean and auditable identification, segregation, tracking, and traceability of the physical export inventory on ground.

2. Payment mechanism: Paragraph 9.17 of the DGFT Notification provides that the EOR must make payments to SORs promptly upon acceptance of the goods and no later than 7 days from the date of such acceptance, irrespective of whether the corresponding overseas sales proceeds have been received. The 7-day timeline for payment to SORs is especially of consequence given that FEMA regulations on export of goods and services generally provide exporters with a 9-month timeline to realize and repatriate the export proceeds. Accordingly, the EOR may find itself bearing the cost of purchased goods payable to the SOR significantly before the corresponding payment is received from the overseas buyer. Any exposure associated with the longer period for export realization permitted under FEMA will be borne by the EOR alone.

Further, payment to the SOR can neither be made contingent upon nor be delayed on account of receipt of payment from the buyer outside India or return of goods by the buyer outside India or any other event outside the control of the SOR. Therefore, DGFT Notification places most of the export risk upon the EOR, and domestic sellers need not bear the cost of risk and time for successful delivery and settlement with the overseas buyer, in order to receive payment for the goods supplied.

At the same time, the DGFT Notification makes a deliberate policy choice to preserve export incentives that would accrue to SORs if they undertaking export themselves. The EORs are require to pass on to the SORs, any cash or cash-equivalent export incentives offered under notified exports schemes involving direct monetary or transferable financial benefit including Duty Drawback, RoDTEP and RoSCTL (Export Rebates and Refunds). These are to be apportioned and disbursed in proportion to the Free-on-Board (FOB) value attributable to the goods of each SOR. Notably, the underlying schemes do not ordinarily require a merchant exporter to pass on the export incentives to the manufacturer from whom the exported goods were procured. The pass-through obligation in the DGFT Notification is specific to the inventory-based cross-border e-commerce framework and intended to ensure the economic benefits associated with the exports substantially revert back to the domestic manufacturers and sellers.

3. Reverse logistics and returned consignments: Paragraph 9.18 of the DGFT Notification states that EOR must own and manage all reverse logistics processes for returned or rejected consignments as well as bear the costs for reverse logistics. Therefore, the EOR intending to undertake e-commerce export must take on the cross-border logistical risk of the transaction. This is an important restriction, given the nature of frequent returns/rejections of goods in the e-commerce segment and the higher costs associated with freight, customs clearance, and warehousing in cross-border e-commerce. It also ensures that the transaction does not become uneconomical for domestic sellers and manufacturers so as to limit their participation in cross-border e-commerce. At the same time, it is unclear whether this protection will extend to claims for damages arising returns or rejections occurring from the SOR's breach of obligations, i.e. supplying inadequate quantities or defective products, false representation regarding origin of the goods etc.

Further, any returned or rejected consignment cannot be sold or supplied in the domestic market by the EOR directly or through any other person or entity. This restriction is intended to close the loophole where the EOR only notionally exports the goods to overseas buyers who either reject or return the goods so as to allow the EOR to hold inventory of the goods for sale in the domestic territory. It ties in with other restrictions which state that goods may be procured only against a confirmed export order and export inventory must be separately identified, segregated and digitally traceable.

However, the DGFT Notification does not clarify the treatment of export incentives, and whether the EOR is entitled to claim from the SOR in event of reversal of the Export Rebates and Refunds upon re-import.

Reading together the provisions for inventory management, payment terms and reverse logistics, it is apparent that a greater burden of the transaction risk and compliance obligations is placed upon the e-commerce platforms. This is also logical to an extent, given that global e-commerce players have greater risk appetite and are supported by their vast warehousing, logistics and fulfillment capabilities as well as several years of experience in cross-border e-commerce. Coupled with the requirements of a separate legal entity and Indian-origin of exported goods, we may say that it is a truncated yet important win for big, foreign-backed e-commerce players.

Coming nearly ten years after FDI was first liberalized for the B2C marketplace-based models, PN 3/2026 and the DGFT Notification are a historic relaxation for FDI in the e-commerce sector and open the gates for eventual expansion into other restricted segments of e-commerce such as multi-brand retail trading. This is also a major boost towards promoting the 'Made in India' brand abroad, by unlocking market access for smaller and less-connected domestic sellers, especially MSMEs and businesses in Tier-II and Tier-III cities. If utilized to its full potential, the inventory-based e-commerce framework will greatly transform the manufacturing and export scene in India.