Govt may allow FDI in inventory ecommerce model to drive exports
India’s FDI policy bars foreign investment in inventory-based ecommerce, allowing 100% FDI only under the automatic route for marketplace platforms such as Amazon and Flipkart.
The Commerce and Industry Ministry has floated a note seeking views from various central government departments on a proposal to allow foreign direct investment (FDI) in the inventory-based model of ecommerce solely for export purposes, an official said.
The proposal aims to boost India's exports without impacting the businesses of small retailers.
At present, the country's FDI policy does not permit overseas investments in the inventory-based model of ecommerce. It is 100% allowed through the automatic route in firms that are operating through a marketplace model only, like Amazon and Flipkart.
The proposal is to permit ecommerce entities in the inventory-based model of ecommerce, exclusively for the export of goods and products manufactured or produced in India, in compliance with the existing FDI policy, the official said.
According to the FDI policy, the inventory-based model of ecommerce means an ecommerce activity where the inventory of goods and services is owned by ecommerce entities.
On the other hand, the marketplace-based model of ecommerce means providing an information technology platform by an ecommerce entity on a digital and electronic network to act as a facilitator between buyer and seller.
According to experts, the policy talks about selling these goods in the domestic market and not exports.
The FDI policy also states that an ecommerce entity providing a marketplace will not exercise ownership or control over the inventory, i.e. goods purported to be sold. Such an ownership, or control over the inventory, will render the business into an inventory-based model.
The proposal was mooted by the Directorate General of Foreign Trade (DGFT) and is being examined by the Department for Promotion of Industry and Internal Trade (DPIIT).
Last month, Commerce and Industry Minister Piyush Goyal said the proposal is under consideration.
The minister added that if such ecommerce firms want to keep inventory for exports, then "I think we have no objection to that".
Ecommerce stakeholders, too, have asked for a relook at the FDI policy on this issue.
The proposal is important as the government is looking at ways to boost exports through the ecommerce medium. It is working on measures such as setting up ecommerce export hubs.
As per estimates, the country's ecommerce exports currently stand at $2 billion compared to China's staggering $350 billion.
The global ecommerce trade is about $800 billion and estimated to reach $2 trillion by 2030.
A report by economic think tank GTRI said India's ecommerce exports have the potential to reach $350 billion by 2030, but banking issues hinder growth and increase operational costs.
India's ecommerce industry is driven primarily by small businesses that export products valued between $25 and $1,000. The popular items include Handicrafts, art, books, ready-made garments, imitation jewellery, gems and jewellery, home decor, ayurveda products, and sports goods.
India has set a target of $1 trillion of merchandise exports by 2030, and cross-border ecommerce trade has been identified as a source to meet this aim.