E-Com Companies Should Have Separate Legal Entity for Exports Under New FDI Policy

Chennai: Under the new FDI policy for e-commerce companies allowing the inventory model for export purposes, the government has notified that the exports should be conducted by a separate legal entity of the e-commerce company. However, experts still are worried whether this change in the FDI policy will lead to allowing inventory model for domestic sales.

In the notification issued on Wednesday, the Director General of Foreign Trade said that the new rules allow e-commerce companies, including foreign-funded firms, to hold Indian-made goods in inventory exclusively for export.

However, the exports must be conducted through a separate legal entity registered with DGFT as an Exporter-on-Record (EOR). The EOR must have an Importer-Exporter Code and GST registration.

When the FDI policy was announced in July, experts had raised concerns about whether such inventory could be sold in the domestic market as well, which is not permitted under FDI policy.

In the notification, DGFT said that e-commerce companies cannot buy goods from the Indian supplier merely to build inventory for possible future demand. The EOR can acquire ownership of goods only after receiving a confirmed order from an overseas buyer. Export goods must be kept separate and digitally linked to the seller, overseas order and export documents.

The EOR will bear the cost and responsibility for handling returned or rejected export consignments. Returned goods cannot be sold in India, either directly or through another company.

The FDI relaxation will take effect only after the corresponding FEMA notification.

The new policy is broadly similar to DGFT’s existing export-house model, under which small firms supply goods to export houses for overseas sale. E-commerce companies were already free to use this arrangement, so a change in the FDI policy may not have been necessary, finds GTRI.

“The new FDI relaxation raises a larger concern. Although currently limited to exports, it establishes the principle that foreign-funded e-commerce companies may own inventory. Soon, this could create pressure to extend the same model to domestic sales, opening the door to inventory-based e-commerce across all transactions,” said Ajay Srivastava, founder, GTRI.