Introduction

On July 23, 2026, the Department for Promotion of Industry and Internal Trade (the “DPIIT”), Ministry of Commerce and Industry, notified Press Note 3 (2026 Series) (“Press Note 3”), amending the Consolidated Foreign Direct Investment Policy, 2020 dated 15.10.2020 (the “FDI Policy”). Press Note 3 introduces a new entry in the FDI Policy permitting Foreign Direct Investment (“FDI”) in an e-commerce entity engaged in the inventory-based model of e-commerce exclusively for the export of goods/products manufactured and/or produced in India. Prior to this amendment, FDI was not permitted in any entity engaged in inventory-based model of e-commerce on a Business to Consumer (“B2C”) basis, irrespective of domestic sales or for exports. The changes introduced by the Press Note 3 will take effect only upon the corresponding notification under Foreign Exchange Management Act, 1999 (“FEMA”).

Regulatory Background

Under the FDI Policy, both, business to business (“B2B”) e-commerce and B2C e-commerce models are recognized. 100% (one hundred percent) FDI is permitted under the automatic route for entities engaged in B2B e-commerce. However, there are certain restrictions for entities engaged in B2C e-commerce. B2C e-commerce business is further categorised into the marketplace-based model of e-commerce and the inventory-based model of e-commerce.  A marketplace-based model of e-commerce refers to an e-commerce entity providing an information technology platform on a digital and electronic network to act as a facilitator between buyer and seller.  Whereas an inventory-based model of e-commerce refers to an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly.

Pursuant to Press Note 3 (2016 Series) dated 29.03.2016, 100% FDI under the automatic route is permitted for entities engaged in the marketplace-based model of e-commerce. However, FDI is not permitted in inventory-based model of e-commerce.

Rationale for the Amendment

With respect to Press Note 3, the DPIIT provides a rationale for such a change as being to facilitate greater exports through easier and increased access to global markets for the Indian sellers. By doing so, Press Note 3 attempts to strike a balance between protection of small offline retailers of multi-branded products and retailers intending to engage only in exports through an inventory-based e-commerce model.

Key Observations

Multiple e-commerce activities under the same entity

The Press Note 3 permits FDI under the automatic route for inventory-based model of e-commerce ‘exclusively’ for exports. Accordingly, it is unclear if an e-commerce entity can undertake both, a marketplace model of e-commerce for facilitating domestic retail trading, as well as inventory-based model of e-commerce with respect to export of Indian manufactured goods/products, simultaneously. 

Manufacturing or Production in India

The burden of proof to ensure that the products sold under the inventory-based model of e-commerce are manufactured/produced in India lies on the e-commerce entity undertaking the exports of such products.

Alignment with the Foreign Trade Policy and Export Regulations 

The relaxation under Press Note 3 is explicitly conditioned upon the relevant entity complying with the Foreign Trade Policy, 2023, the Handbook of Procedures and the Foreign Exchange Management (Export of Goods and Services) Regulations, 2015 (collectively the “FEMA Export Laws”). While exports from India are, in any event, required to comply with the FEMA Export Laws, the express cross-reference raises an interpretational question as to whether compliance with the FEMA Export Laws has been imported as a condition for availing 100% FDI under the automatic route. In this context, a distinction may need to be drawn between substantive non-compliances affecting the eligibility or permissibility of the export and procedural or administrative lapses. From a practical perspective, a minor procedural or administrative lapse should not, by itself, render the benefit of the relaxation unavailable; however, the language of the Press Note 3 leaves room for such an interpretation. 

Concluding Remarks

The Press Note 3 represents a narrow relaxation in the direction of the liberalisation of the FDI policy in the e-commerce sector. It is silent on certain aspects as mentioned above and prescribes strict conditions for availing the relaxation and continuing to be eligible to avail such relaxation.

This move is significant for the large, foreign funded e-commerce marketplace entities that have spent close to a decade contending the regulatory and antitrust scrutiny over the allegations of exercising indirect control over the preferred sellers on their platforms. The Press Note 3 may offer a relief to the extent that such preferred sellers are manufacturing / producing the goods/products in India and use the inventory-based model of e-commerce route solely for exports.  

However, since Press Note 3 is not effective until the corresponding FEMA notification, it should be treated as a statement of policy intent, and no structural changes should be carried out solely based on Press Note 3.

Please find attached the copy of the Press Note 3, here.

This update has been contributed by Anindya Ghosh, Jaidrath Zaveri (Partners) and Shruti Walzade (Associate).

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