India's Press Note 3 of 2026 permits 100% FDI in inventory-based e-commerce exclusively for exports of goods manufactured or produced in India. This alert examines the policy change, its implications, compliance requirements, and key considerations for businesses.

SUMMARY

In a significant move, the Department for Promotion of Industry and Internal Trade ("DPIIT") has issued Press Note No. 3 (2026 Series) (the "E-COM Press Note") on 23 July 2026, carving out an exception to the existing prohibition on foreign direct investment (“FDI”) in the inventory-based model of e-commerce by permitting such investments where the e-commerce entity is engaged exclusively in the export of domestically manufactured and/or produced goods. Key features of E-COM Press Note include:

1.   A targeted relaxation of the restriction on FDI in the inventory-based model of e-commerce, permitting 100% FDI in such entities exclusively for export-oriented operations involving goods manufactured and/or produced in India;

2.     Express preservation of existing restrictions under Paras 5.2.15.2.1 to 5.2.15.2.4 of the FDI Policy in respect of domestic B2C and inventory-based e-commerce, with the liberalisation not extending to domestic retail sales;

3.   A resolution of prior interpretational ambiguity under the FDI Policy as to whether inventory restrictions applicable to domestic retail also governed export-oriented operations, with the E-COM Press Note definitively clarifying that they do not; and

4.    Text Box: BACKGROUNDA deferred effective date, with the policy change taking effect from the date of the corresponding FEMA notification.

BACKGROUND

As per the Consolidated FDI Policy Circular of 2020 dated 15 October 2020, as amended from time to time ("FDI Policy") and Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (“NDI Rules”), FDI is permitted in Business to Business ("B2B") e-commerce and in the marketplace model of e-commerce. However, FDI is not permitted in Business to Consumer ("B2C") e-commerce or in the inventory-based model of e-commerce, where the inventory of goods and services is owned by the e-commerce entity and is sold directly to consumers.

The extant framework thus drew a firm distinction between marketplace-based and inventory-based models, restricting the latter entirely from FDI participation. This framework has remained broadly unchanged since its introduction, with foreign-funded e-commerce platforms required to operate as pure marketplaces connecting buyers and sellers rather than holding and selling their own inventory. While FDI was already permissible in the B2B channel, uncertainty persisted as to whether the inventory restrictions governing domestic retail would also apply to operations directed exclusively at overseas markets. E-COM Press Note now puts that question to rest.

E-COM Press Note has been issued with the stated objective of facilitating greater exports through easier and increased access to global markets by Indian sellers, and reflects the Government's intent to deploy foreign capital and global platform infrastructure in the service of India's export ambitions, including its stated target of achieving USD 200 billion in e-commerce exports by 2030. The policy is also aligned with broader Government programmes, including Make in India, the Foreign Trade Policy 2023 (“FTP 2023”), and the Districts as Export Hubs initiative.

KEY POLICY CHANGES

New Para 5.2.15.2.5 — Scope and Eligibility

The E-COM Press Note proposes to insert a new Para 5.2.15.2.5 under the FDI Policy, captioned "Inventory-Based Model of E-Commerce Exclusively for Exports", permitting an e-commerce entity to engage in the inventory-based model of e-commerce exclusively for the export of goods/products manufactured and/or produced in India, as per the applicable provisions of the FTP 2023 read with the Handbook of Procedures ("HBP") and the Foreign Exchange Management (Export of Goods & Services) Regulations, 2015, as amended from time to time.

Preservation of Domestic Restrictions

The relaxation introduced under the E-COM Press Note is expressly limited to export-oriented operations. The restrictions on B2C e-commerce and the inventory-based model of e-commerce under Paras 5.2.15.2.1 to 5.2.15.2.4 of the FDI Policy continue to apply in their entirety to the domestic sale of goods and services and are wholly unaffected by the new carve-out. Foreign-funded e-commerce entities may not, under any circumstances, utilise the E-COM Press Note framework to hold inventory for direct sale to Indian consumers.

Resolution of Interpretational Ambiguity

Prior to E-COM Press Note, the FDI Policy did not expressly address whether export-oriented inventory-based operations were caught by the same restrictions as domestic retail inventory. E-COM Press Note resolves this question by expressly providing that the restrictions stipulated under Paras 5.2.15.2.1 to 5.2.15.2.4 shall not apply to the export of goods/products through e-commerce as permitted under the new Para 5.2.15.2.5(i). This is a material clarification for entities that were previously uncertain about the regulatory treatment of export-focused inventory operations.

Effective Date

The policy change introduced by E-COM Press Note will take effect from the date of the corresponding notification under the Foreign Exchange Management Act, 1999 ("FEMA") and the NDI Rules. DPIIT has forwarded E-COM Press Note to the Department of Economic Affairs and the Reserve Bank of India for suitably incorporating the policy changes in the NDI Rules and the relevant schedules thereof, as well as on the FIRMS portal.

POLICY RATIONALE AND EXPECTED BENEFITS

Support for Indian Manufacturers and MSMEs

The liberalisation is specifically aimed at enabling Indian manufacturers, in particular MSMEs and businesses operating from Tier-II and Tier-III cities that have historically lacked the resources to independently access international markets, to leverage the warehousing infrastructure, logistics capabilities, and global consumer reach of large, foreign-funded e-commerce platforms. By permitting these platforms to maintain export-oriented inventories, the Government anticipates improvements in supply chain efficiencies, reduction in international delivery timelines, and a material enhancement in the competitiveness of Indian goods in overseas markets.

Boost to E-Commerce Exports

The amendment forms part of a broader Government push to scale India's e-commerce export ecosystem, in support of the stated target of USD 200 billion in e-commerce exports by 2030. Enabling globally established platforms to procure, warehouse, and ship Indian goods under an inventory-based model, rather than being confined to the marketplace model, is expected to add meaningful export capacity, particularly for goods from sectors where speed-to-market and platform-managed fulfilment are critical competitive differentiators.

Alignment with Macro Policy Objectives

The policy dovetails with the Government's objective of expanding the manufacturing sector's share in GDP to 25% by 2035 and increasing overall merchandise exports. Greater access to international markets through foreign-funded export platforms is expected to incentivise higher domestic production volumes and, correspondingly, greater employment generation in the manufacturing sector.

OUR ANALYSIS

E-COM PRESS NOTE marks a meaningful and deliberately calibrated shift in India's approach to FDI in the e-commerce sector. For nearly a decade, the prohibition on the inventory-based model has been a defining feature of India's e-commerce FDI regime, designed to protect domestic retailers from the competitive advantages that integrated inventory control confers on well-capitalised foreign-funded platforms. The liberalisation is precisely targeted: it is confined exclusively to the export of domestically manufactured and/or produced goods, ensuring that the relaxation serves the Government's trade promotion objectives without dismantling the protections afforded to India's domestic retail ecosystem.

In our view several practical questions arise in the implementation of this framework:

1.  Monitoring and enforcement risk: The export-only restriction creates an inherent monitoring challenge. Maintaining, verifying, and enforcing a clean segregation between inventory held for export and inventory that might otherwise be accessed for domestic sale will require robust compliance architecture on the part of e-commerce entities and active oversight by regulators.

2.  Exclusivity requirement and structural complexity: The new Para 5.2.15.2.5 requires that the inventory-based model be adopted "exclusively" for exports. It remains to be clarified whether an entity that also operates a marketplace model for domestic transactions may avail of the export inventory-based model within the same legal entity, or whether structural separation will be required. A single-entity structure carrying both domestic and export operations may create a compliance risk.

3.  "Manufactured and/or produced in India" and evidentiary requirements: The eligibility criterion requires goods to be "manufactured and/or produced in India." Whether goods that incorporate foreign-origin inputs but are substantially manufactured or assembled in India would qualify will require careful examination. Entities will have to maintain comprehensive documentation of Indian origin, including tax invoices from Indian suppliers to demonstrate compliance with this requirement.

4.  Deferred effective date and interim risk: The policy change takes effect only upon issuance of the FEMA notification. Until the corresponding amendment to the NDI Rules, 2019 is notified, the existing restrictions on the inventory-based model continue to apply without exception. Any entity that restructures its operations or receives FDI in anticipation of E-COM Press Note before the FEMA notification is issued does so at regulatory risk.

5.   Multi-regulatory compliance overlay: The cross-reference in the new Para 5.2.15.2.5(i) to the FTP 2023, HBP, and the Foreign Exchange Management (Export of Goods & Services) Regulations, 2015 operates as more than a procedural pointer; it imports a substantial and integrated compliance architecture into the FDI framework and subjects e-commerce entities operating under the E-COM Press Note to the concurrent regulatory oversight of three separate authorities: DPIIT (FDI policy), the DGFT (trade policy), and the Reserve Bank of India (foreign exchange). A breach in any one of these regulatory layers can have consequences across the broader compliance framework. For instance, non-realisation of export proceeds may constitute a contravention under FEMA and is generally capable of being compounded under the applicable compounding framework. Similarly, non-compliance with the requirement that the inventory-based e-commerce activity be undertaken exclusively for exports may give rise to a contravention under the FEMA regime once operationalised through the corresponding FEMA notification. Entities must accordingly build integrated compliance systems that address the trade, foreign exchange, and FDI dimensions of their operations simultaneously, rather than treating each regulatory layer in isolation.

PRACTICAL STEPS FOR E-COMMERCE ENTITIES

Given the above, we believe that entities seeking to avail themselves of the E-COM Press Note framework should take the following immediate steps:

1. Establish inventory segregation controls: Implement internal policies and systems to ensure that inventory held under the E-COM Press Note framework is exclusively used for export consignments, with no commingling with domestically-used inventory.

2.  Maintain origin documentation: Establish a robust document trail confirming Indian manufacture/production of all exported goods, particularly where goods incorporate imported inputs.

3. Set up EDPMS monitoring: Implement treasury and receivables tracking systems to ensure timely realisation and repatriation of export proceeds within regulatory timelines.

4.  Assess entity structure: Evaluate whether a single-entity or multi-entity corporate structure is appropriate in light of the "exclusively for exports" condition.

 

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