Industry Fears FDI Relaxation Will Be Misused: Seeks Safeguards
The new policy allows them to purchase, store and export goods directly from their own inventory.
Chennai: In a major shift in India’s FDI policy in e-commerce, the government has allowed FDI-funded e-commerce companies to operate the inventory-led model for export purposes. Experts find that separation of inventory for export and domestic sales will not be easy and seek strict safeguards to prevent misuse of the provisions. They also find that this could be a precursor to opening up digital trade under the US-India trade deal.
Until now, foreign-funded e-commerce firms were allowed to operate only as marketplaces, where they connected buyers and sellers without owning the products. The new policy allows them to purchase, store and export goods directly from their own inventory.
India originally banned the inventory model to protect millions of small retailers and prevent foreign companies from entering multi-brand retail through online platforms.
Confederation of All India Traders finds that both Amazon and Flipkart have been violating FDI policies and engaging in anti-competitive practices. "It is equally important to ensure that this provision is implemented in both letter and spirit and is not misused as a backdoor route for undertaking domestic B2C e-commerce trade," said Praveen Khandelwal, secretary general of CAIT.
GTRI warns the export-only exception could become the first step towards allowing inventory-based foreign e-commerce in the domestic market, as export and domestic inventories are difficult to separate.
At a minimum, the policy should require complete physical and digital separation of export and domestic inventories, with separate warehouses, stock records and audit trails.
Foreign-funded platforms should be required to report inventory movement, shipments and seller linkages in real time to regulators.
"A joint inspection and audit mechanism involving officials from the DPIIT and DGFT should be undertaken every quarter to verify that the inventory is being utilized exclusively for exports and that no part of it is entering domestic B2C channels. To promote transparency and public confidence, audit findings should be published every quarter on the websites of both the DPIIT and the concerned e-commerce entity," said Confederation of All India Traders.
The rules should prohibit self-preferencing in search results, product rankings, advertising and buy-box placement, and ensure that export-related incentives are transparently passed on to MSME sellers rather than retained by the platform.
There should also be strict penalties for diversion of inventory to the domestic market, misreporting or related-party routing.
The relaxation of rules for export purposes also can be a precursor to fully opening up of digital trade under the US-India trade deal.
