DGFT notifies export-only inventory rules for foreign-funded e-commerce firms
The Directorate General of Foreign Trade (DGFT) notified operational rules allowing foreign-funded e-commerce entities to hold inventory of domestically manufactured goods exclusively for export.
Exports under this route must be conducted through a separate legal entity registered with DGFT as an "Exporter-on-Record" (EOR), which must hold an Importer-Exporter Code (IEC) and GST registration.
The EOR can take ownership of goods only after a confirmed order from an overseas buyer, and export goods must be kept physically segregated and digitally traceable to the seller, the overseas order, and export documentation.
The notification operationalises a Department for Promotion of Industry and Internal Trade (DPIIT) policy decision of July 2026 that permitted 100% FDI in the inventory-based e-commerce model solely for exporting India-made goods, while continuing to bar FDI-backed inventory-based B2C sales within the domestic market.
FDI Policy in E-Commerce: Marketplace Model vs. Inventory-Based Model
India's FDI policy for e-commerce, consolidated through Press Note 2 (2018 series) issued by the (then) Department of Industrial Policy and Promotion, effective February 1, 2019, distinguishes between two business models. The marketplace model — an IT platform facilitating transactions between independent buyers and sellers without owning the inventory — permits 100% FDI under the automatic route. The inventory-based model — where the e-commerce entity itself owns the goods sold to consumers — has been barred from receiving FDI for domestic B2C sales, to protect small retailers/kirana stores from being undercut by deep-discounting foreign-funded platforms.
Key Details
- Press Note 2 (2018) also introduced a "control" test: a marketplace entity is deemed to control a vendor's inventory if 25% or more of that vendor's purchases come from the e-commerce entity or its group companies — such vendor's goods cannot be sold on the platform.
- FDI-funded marketplace entities are barred from influencing sale prices (no indirect price control) and must provide services (fulfilment, logistics, cash-on-delivery) on a fair, non-discriminatory basis to all vendors.
- The framework has historically been read as protecting India's unorganised retail sector from FDI-funded predatory pricing.
The July 2026 DPIIT amendment carves out a narrow exception: it permits foreign-funded inventory-based e-commerce solely when the goods are manufactured domestically and sold exclusively to overseas buyers, since such exports do not compete with — and instead support — Indian retailers and manufacturers, while the ban on FDI-backed inventory-based B2C sale to Indian consumers remains untouched.
Export Promotion Architecture: DGFT and the Foreign Trade Policy
The DGFT, under the Ministry of Commerce and Industry, is the statutory authority (established under the Foreign Trade (Development and Regulation) Act, 1992) responsible for implementing India's Foreign Trade Policy, including issuing Importer-Exporter Codes (IEC) — mandatory for any entity engaged in import or export — and notifying operational procedures for specific trade schemes.
Key Details
- IEC (Importer-Exporter Code): a 10-digit unique identifier mandatory for cross-border trade, issued by DGFT.
- The Foreign Trade Policy 2023 (in force since April 2023, with periodic amendments) has an explicit thrust on boosting e-commerce exports, including simplified customs and courier-based export norms for small-value e-commerce shipments.
- The "Exporter-on-Record" concept in this notification creates an accountable, traceable export entity distinct from the FDI-funded inventory holder, aligning with DGFT's documentation and customs-compliance requirements for export consignments.
The DGFT notification is the implementation layer translating the DPIIT's FDI policy relaxation into an operational compliance mechanism — ensuring exported inventory remains segregated from any domestic sale channel and is traceable end-to-end, a design meant to prevent the export-only carve-out from being misused for indirect domestic B2C sales.
- DPIIT policy decision allowing 100% FDI in inventory-based e-commerce for exports: announced July 23, 2026.
- Press Note 2 (2018 series) on FDI in e-commerce: effective February 1, 2019.
- FDI in marketplace-model e-commerce: up to 100% via automatic route.
- FDI in inventory-based e-commerce for domestic B2C sales: continues to remain prohibited.
- Vendor "control" threshold under Press Note 2 (2018): 25% or more of a vendor's purchases from the e-commerce entity/its group companies.
- New DGFT compliance entity for export-only inventory: "Exporter-on-Record" (EOR), requiring IEC and GST registration.