Govt pushes for e-commerce exports amid US tariff hit; MSMEs ask govt to allow FDI in inventory-led model

The source said that various methods to boost e-commerce exports are being explored, but there is a major difference of opinion among stakeholders regarding the inventory-based model of e-commerce. “MSMEs have asked the government to allow FDI in the inventory-based model as it could help ease the compliance burden, but there is significant opposition,” the source said.

At present, 100 per cent foreign direct investment (FDI) is allowed under the automatic route in the marketplace model of e-commerce, but FDI is not permitted in the inventory-based model of e-commerce. “The government is looking at the inventory-based model to see if MSMEs can benefit from it amid US tariffs. MSMEs want it as it could ease compliance burden but retailers oppose the same,” the source said.

Under the inventory-based model of e-commerce inventory of goods and services can be owned by e-commerce entities and sold directly to consumers. The marketplace-based model, by contrast, only allows e-commerce companies to have a digital and electronic network to act as a facilitator between buyer and seller.

Notably, India’s e-commerce industry is primarily dominated by small businesses that export products valued between $25 and $1,000, with popular items including handicrafts, art, books, ready-made garments, gems and jewellery. According to think tank GTRI, India’s e-commerce exports have the potential to reach $350 billion by 2030.

Experts say that Indian exports through e-commerce currently stand at only $5 billion, whereas China’s exports have reached $300 billion. As per a GTRI report, India’s e-commerce exports have the potential to grow at a faster pace than its IT exports did in the early 2000s. But despite this potential, India’s current e-commerce export numbers remain far below expectations.

“India’s current e-commerce export provisions are a patchwork of rules framed for regular B2B exporters. This creates an enormous compliance burden on small firms, and India needs to address all such issues in one place. To address such needs, the report recommends that the Indian government issue a separate e-commerce export policy. E-commerce policies in China, Korea, Japan, Vietnam, etc., have helped many firms sell globally,” GTRI said in the report.