Government should reconsider its outdated restrictions on FDI in ecommerce

The Ministry of Commerce and Industry has reportedly circulated a proposal among different departments on allowing foreign direct investment (FDI) in inventory-based ecommerce, albeit limited to export operations. In a way, this recognises that ecommerce is not just a marketplace. Rather, it is an integrated supply chain linking manufacturing, logistics, and exports. Yet, by confining this liberalisation to exports alone, the government risks maintaining an artificial divide between domestic and global retail. Under the current framework, India allows 100 per cent FDI in the marketplace model, where ecommerce firms merely act as intermediaries connecting buyers and sellers. FDI remains barred in the inventory-based model, where platforms own and sell products directly to consumers. This distinction is said to be aimed at preventing foreign-funded platforms from engaging in deep discounting and predatory pricing, which could hurt small traders. While this rationale perhaps made sense in the early days of India’s digital-commerce boom, the market landscape has since matured.

 

Ecommerce in India is becoming large, diverse, and competitive. In this context, continuing to block FDI in inventory-based ecommerce for the domestic market looks increasingly outdated. Instead, the focus should shift from who owns the inventory to how the market operates. Rules ensuring fair competition, transparent pricing, and non-discriminatory access for sellers can prevent concentration of power while attracting much-needed capital and technology. Allowing FDI in inventory-led ecommerce could bring significant benefits. It would channel investment into warehousing, cold storage, logistics, packaging, and quality control — the weak links in India’s retail chain. It would help farmers, artisans, and other small and medium businesses connect efficiently to both Indian and global consumers. It could improve product quality, create jobs, and accelerate the shift to formalised, tax-paying retail activity. For consumers, it would mean better choices, reliability, and service. Such reforms also directly complement the objectives of the Foreign Trade Policy (FTP) 2023, which targets the country’s ecommerce export potential to be in the range of $200 billion-300 billion by 2030 and envisions ecommerce export hubs (ECEHs) as engines of non-traditional exports.

 

To be sure, the concerns of small traders should not be dismissed. But protecting them need not mean stifling progress permanently. The experience with marketplace models shows that strong oversight, requiring fair treatment of sellers, audit certification of compliance, and restrictions on price manipulation, can ensure a level playing field. Extending similar discipline to inventory-based operations would be far more constructive than maintaining investment restrictions as is the case today. India has reached a stage where it must trust its own regulatory capacity and entrepreneurial dynamism. By opening up inventory-based ecommerce to FDI, the government can modernise the retail sector. In this context, the government should also revisit its position on FDI in multibrand retail. Opening up both physical and electronic retail to FDI can bring large amounts of investment, enhance overall efficiency in the sector, create jobs, and benefit consumers.