E-Commerce and FDI: DGFT’s Vision for Inventory-Based Exports

E-commerce is a rapidly growing sector in India, with a potential to reach $200-300 billion in annual exports by 2030, according to the Foreign Trade Policy (FTP). However, the current FDI policy does not allow foreign direct investment in the inventory-based model of e-commerce, which limits the scope and scale of online trade for export purposes. The inventory-based model refers to the situation where an e-commerce entity owns the goods and services and sells them directly to the customers.

Demand for FDI in inventory-based model

The e-commerce industry has suggested the government to permit FDI in an inventory-based model of online trade only for export purposes, a senior government official said on Friday. The industry argues that allowing FDI in this model would help create e-commerce export zones, boost exports, enhance competitiveness and generate employment. The Director General of Foreign Trade (DGFT) Santosh Kumar Sarangi said that they are requesting the Department for Promotion of Industry and Internal Trade (DPIIT) to examine and explore this possibility. According to a report by Statista, India had about 329 million online shoppers in 2021, which is expected to increase to 427 million by 2027. The market size of e-commerce in India was estimated at $64 billion in 2020, and is projected to reach $354 billion by 2030. Allowing FDI in inventory-based model could help tap into this huge potential and increase India’s share in the global cross-border e-commerce market, which is expected to touch $2 trillion by 2025 .

Steps taken by DGFT to promote e-commerce exports

Sarangi also said that the DGFT is working on several steps to promote exports through e-commerce medium, such as:

• Providing GST relief to smaller players by exploring schemes like ‘composition levy scheme’ for e-commerce exporters till they attain a certain threshold of export value . This would reduce the tax burden on small and medium enterprises (SMEs) that are engaged in e-commerce exports.
• Ensuring that e-commerce exports get benefits like duty drawback or DGFT schemes like Remission of Duties and Taxes on Exported Products (RoDTEP) or Rebate of State and Central Taxes and Levies (RoSCTL) by working with Express Cargo Clearance Systems (ECCS) and postal bill of exports . This would provide incentives and refunds to e-commerce exporters for the duties and taxes paid on inputs used in the production of exported goods.
• Strengthening and expanding the Dak Niryat Kendras and foreign post offices (FPOs) in collaboration with the Department of Post to facilitate faster and smoother customs clearance and shipment of export consignments . This would improve the logistics and delivery infrastructure for e-commerce exports. According to a presentation by UNSD, India had 15 foreign post offices (FPOs) as of 2019, which handled about 4.5 million parcels of e-commerce exports worth $1.2 billion.

The government is examining the industry’s demand to allow FDI in inventory-based e-commerce for exports, which could be a game-changer for the sector. The DGFT is also taking various measures to support and incentivize e-commerce exports, which could help India tap into the global cross-border e-commerce market, which is expected to touch $2 trillion by 2025 .