The government of India is considering changes to foreign direct investment (FDI) regulations for e-commerce to help micro, small, and medium enterprises (MSMEs) tap global markets. The Directorate General of Foreign Trade (DGFT) has proposed an inventory-based e-commerce export model that would allow designated third-party entities to hold stock and manage backend processes on behalf of MSMEs.

Currently, India prohibits inventory-led e-commerce under FDI rules, but the DGFT has suggested an exemption for this export-only framework. A draft proposal reviewed by TNIE notes that fewer than 10% of MSMEs selling online domestically are engaged in cross-border e-commerce, largely due to hurdles such as complex documentation, compliance requirements, packaging standards, high logistics costs, and lack of expertise.

Under the plan, export entities would maintain inventory solely for overseas shipments, with diversion into the domestic market barred. Any such breach would attract penalties. Only goods manufactured in India and procured from GST-registered MSME sellers would qualify under the model.

The framework also calls for stronger safeguards for small businesses. Export entities would be required to pass on export-linked incentives, including GST refunds, duty drawback, and benefits under the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme, to MSME sellers on a pro-rata basis. They would also be tasked with providing grievance redressal, resolving complaints within 15 working days, with unresolved cases escalated to DGFT for resolution within 30 days.

In addition to handling paperwork, logistics, and returns, export entities would act as intermediaries, ensuring the timely settlement of benefits. Non-compliance, including inventory diversion or withholding of benefits, could invite strict action such as suspension of DGFT registration, forfeiture of incentives, debarment from Foreign Trade Policy schemes for at least two years, and penalties of up to 200% of the undue gain claimed.

The proposal is aimed at simplifying export processes, lowering costs, and ensuring that MSMEs can participate more effectively in global e-commerce.

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