By Adv. Ishani Goyal
Whenever the Department for Promotion of Industry and Internal Trade (DPIIT) issues a document titled “Press Note 3,” the cross-border business community instinctively pays attention.
In 2016, Press Note 3 (2016 Series) laid down the initial regulatory architecture for e-commerce by formally bifurcating the sector into the “marketplace model” (where 100% foreign direct investment was welcomed) and the “inventory-based model” (where foreign capital was prohibited). Four years later, Press Note 3 (2020 Series) transformed India’s cross-border investment landscape by requiring prior government security clearance for any FDI originating from countries sharing a land border with India.
DPIIT has released another significant policy update with Press Note 3 (2026 Series). This policy introduces a targeted change to India’s Consolidated FDI Policy regarding foreign investment in e-commerce.
What Has Changed? The Export Carve-Out
For nearly a decade, foreign-funded e-commerce platforms operated under a strict prohibition: no foreign direct investment was permitted in an inventory-based model of e-commerce. Under paragraph 5.2.15.2 of the FDI Policy, e-commerce entities with foreign capital could only run technology platforms connecting independent third-party buyers and sellers. They were barred from owning, warehousing, or exercising ownership over the goods sold on their platforms.
Press Note 3 (2026 Series) carves out a specific exception to this rule:
E-commerce entities that have foreign investment (or are eligible to receive FDI) are now permitted to operate an inventory-based model exclusively for the export of goods and products manufactured or produced in India.
This revision is subject to compliance with the Foreign Trade Policy (FTP), 2023, the Handbook of Procedures, and relevant FEMA regulations (specifically the Non-Debt Instruments Rules and Export of Goods & Services Regulations).
INDIA'S E-COMMERCE FDI POLICY ARCHITECTURE
│
┌───────────────────────────┴───────────────────────────┐
▼ ▼
DOMESTIC SALES EXPORT SALES
(Indian Consumers) (Overseas Consumers)
│ │
┌───────┴───────┐ ┌───────┴───────┐
▼ ▼ ▼ ▼
Marketplace Inventory Marketplace Inventory
Model Model Model Model
(100% FDI (FDI is (100% FDI (100% FDI
Permitted) STRICTLY BANNED) Permitted) PERMITTED under
PN 3 of 2026)
The Line in the Sand: Domestic Protections Remain Intact
The government has maintained a clear distinction in the domestic market: this policy update is exclusively focused on exports.
- Domestic B2C Retail Remains Off-Limits:The restrictions under Paragraphs 5.2.15.2.1 to 5.2.15.2.4 of the FDI Policy remain fully in force.Foreign capital cannot be used to hold inventory and sell directly to Indian retail consumers.
- Protecting the Kirana Ecosystem: The continued restriction on domestic inventory-based retail is designed to protect local micro-retailers, offline brick-and-mortar stores, and domestic trade associations from price-distorting algorithms and predatory inventory discounting backed by foreign capital.
- The “Made in India” Mandate:The inventory held by foreign-invested platforms must comprise goods manufactured or produced in India. Platforms cannot use Indian bonded warehouses as transshipment hubs to import foreign goods, store them, and re-export them under this specific carve-out.
Why This Policy Shift Matters for Indian Businesses
The operational realities of cross-border e-commerce differ significantly from domestic deliveries. An overseas customer buying an Indian brass lamp, handloom saree, or specialized industrial component expects 3-to-5-day delivery, seamless returns, and quality guarantees. Under a pure marketplace model, small domestic manufacturers often struggle with overseas freight forwarders, international return logistics, and cross-border payment settlements.
By allowing global platforms like Amazon, Walmart/Flipkart, and specialized international aggregators to purchase, warehouse, and own inventory in India exclusively for foreign buyers, the policy provides:
- Direct Market Access for MSMEs: Small artisans, weavers, and regional engineering clusters in Tier-2 and Tier-3 cities can sell inventory in bulk to global e-commerce players locally, shifting the complexities of international logistics, customs clearance, and overseas warehousing to the platform.
- Alignment with the $200B Export Target:India has set a target of reaching $200 billion in e-commerce exports by 2030. Press Note 3 (2026) provides the regulatory framework needed to scale E-Commerce Export Hubs (ECEHs) under the Foreign Trade Policy, 2023.
- Working Capital Relief: Instead of waiting weeks for overseas consumer payments, Indian producers receive faster liquidity by supplying their goods directly to export-dedicated e-commerce warehouses inside India.
Critical Compliance Considerations for Corporate Structuring
While the policy opens new commercial avenues, businesses and legal counsels must navigate several structural conditions:
1. Structural Corporate Separation
Can an existing foreign-invested entity running a domestic marketplace also hold inventory for exports under the same company?
The short answer is: proceed with caution.To avoid regulatory overlap between domestic marketplace activities and export inventory holding, companies will likely need to incorporate a dedicated standalone export subsidiary or separate corporate vehicle.Maintaining separate entities ensures financial books, GST filings, and inventory software are distinct, preventing any inadvertent co-mingling of export inventory with domestic stock.
2. Physical and Digital Inventory Segregation
For businesses managing warehousing across multiple channels, facilities must implement strict inventory tracking systems. Goods procured under the export inventory model must be digitally tracked with verifiable tax invoices from local suppliers to prove domestic manufacturing origin.
3. Evidentiary Proof of “Manufactured or Produced in India”
Merely packaging, labeling, or assembling imported components does not automatically qualify a product as “produced in India” under Indian foreign trade regulations. E-commerce platforms holding export stock must maintain comprehensive audit trails demonstrating local value addition, factory source data, and supplier GST compliance.
4. FEMA & RBI Operationalization
While the DPIIT has established the policy direction through Press Note 3, the amendment officially takes effect upon the notification of corresponding amendments to the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 by the Ministry of Finance, alongside relevant updates to the RBI’s FIRMS reporting portal.
Looking Ahead
Press Note 3 (2026 Series) is a practical, calibrated step forward for Indian trade policy. By maintaining protections for domestic retail while unlocking foreign capital for global logistics, the government is transforming India from a purely domestic consumer market into an international export hub.
For Indian manufacturers, MSMEs, and direct-to-consumer (D2C) brands, this shift offers a direct route onto the global stage. For international platforms, it resolves long-standing regulatory ambiguity, clearing the path to build export infrastructure on Indian soil.
