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India has eased its foreign direct investment (FDI) rules to allow foreign-funded e-commerce companies to purchase products directly from Indian sellers and export them to overseas customers, marking a significant relaxation of the country’s tightly controlled online retail regime.
The policy change is a major win for Amazon, which has lobbied the Indian government for greater flexibility in its e-commerce operations for months. It comes at a sensitive time for India-US trade relations, with New Delhi and Washington still struggling to finalise a broader trade agreement.
India’s e-commerce investment rules have long been a source of friction between the two countries. US companies such as Amazon and Walmart have argued that restrictions on inventory ownership limit their ability to expand in one of the world’s fastest-growing digital markets.
The government, however, has traditionally maintained a strict distinction between foreign-funded marketplace platforms and inventory-based online retailers to protect millions of small retailers and traders.
What has changed?
The Department for Promotion of Industry and Internal Trade (DPIIT), through Press Note No. 3 (2026 Series) issued on July 23, introduced a new provision in India’s FDI policy.
The new provision will allow foreign-invested e-commerce companies to operate an inventory-based model for exporting goods manufactured or produced in India.
The change will take effect after the corresponding amendments are made to the Foreign Exchange Management (Non-Debt Instruments) Rules through a notification under the Foreign Exchange Management Act (FEMA).
Under the existing rules, foreign-funded e-commerce companies are permitted to operate only as marketplaces. They can connect buyers and sellers and provide the digital infrastructure for transactions, but cannot own the goods sold on their platforms.
The new provision will allow them to purchase, store and export Indian products directly from their own inventory.
The government said the move would “facilitate greater exports through easier and increased access of global markets”.
Amazon said the policy change would help manufacturers, particularly those in smaller towns and cities, reach overseas buyers.
The company said the move would support its goal of achieving $80 billion in cumulative exports from India by 2030.
Walmart’s Indian e-commerce company Flipkart did not respond to requests for comment.
Why the move matters
India allows 100 per cent FDI in the marketplace model. However, foreign investment in inventory-based e-commerce has remained prohibited because it could effectively allow foreign companies to enter India’s multi-brand retail sector.
The distinction has been central to India’s e-commerce policy for nearly a decade.
Under the marketplace model, online platforms act as intermediaries. Independent sellers own the products and sell them through the platform, while the e-commerce company earns commissions and other fees.
Under an inventory-based model, the platform itself owns the products, manages inventory and sells directly to customers.
India has kept the latter model largely closed to foreign investment to protect small retailers from the market power of large global companies.
The restrictions were also designed to prevent foreign companies from indirectly bypassing India’s rules on multi-brand retail through online platforms.
Over the years, the government has repeatedly tightened its e-commerce rules following allegations that foreign-funded marketplaces were exercising indirect control over inventory through affiliated sellers.
The latest policy change creates an exception for exports.
Foreign-funded e-commerce companies will now be able to own and manage inventory for goods produced in India, provided those products are meant for overseas markets.
Amazon gains greater flexibility
The policy change is particularly significant for Amazon, which has been pushing for greater flexibility in its Indian operations.
The company has built a major export business from India and has increasingly positioned the country as a manufacturing and global sourcing hub.
The new rules will allow Amazon to buy products directly from Indian manufacturers and sellers, hold them as inventory and export them to customers in overseas markets.
This could make it easier for the company to consolidate products, manage supply chains and scale exports from India.
The policy could also benefit manufacturers and small businesses outside India’s major urban centres by giving them access to a larger global distribution network.
The government has framed the move primarily as an export-promotion measure.
However, the change comes against the backdrop of longstanding pressure from US companies for greater access to India’s e-commerce market.
India-US trade talks backdrop
The timing of the decision is notable.
India and the United States are currently engaged in difficult negotiations over a trade agreement. E-commerce and market access have been among the contentious issues in the broader bilateral trade relationship.
For years, Washington has raised concerns over India’s restrictions on foreign e-commerce companies. US firms have argued that India’s rules make it difficult for them to compete on equal terms with domestic businesses.
Indian authorities, meanwhile, have sought to balance the interests of global technology companies with those of millions of small retailers and traders.
The latest policy relaxation could therefore help address one of the long-standing concerns raised by American companies.
But the move has also triggered criticism that India may have given away a valuable negotiating concession without securing equivalent benefits for Indian exporters in return.
GTRI warns of broader policy implications
The Global Trade Research Initiative (GTRI) described the decision as a major shift in India’s long-standing foreign investment policy.
GTRI founder Ajay Srivastava said the change could benefit global e-commerce companies such as Amazon and could eventually create pressure for a wider opening of India’s online retail sector.
He described the policy as a unilateral concession and argued that India had, in recent years, expanded market access for US companies through a series of policy changes.
These included reductions in import duties on products such as bourbon whiskey, motorcycles, information and communications technology products, medical devices and premium automobiles.
Srivastava also cited easier market access for products such as alfalfa hay and duck meat, liberalised FDI rules in some sectors, simplified customs procedures and relaxed quality-control requirements for selected imports.
His argument is that several of these measures could have been used as bargaining chips in trade negotiations.
Had they been offered as part of a broader trade agreement, India could have sought commercially meaningful concessions from the US in return, he said.
Offering such concessions in advance, he argued, could weaken India’s negotiating leverage in future trade talks.
Retailers seek strict oversight
The move has also raised concerns among India’s traditional retailers.
The Confederation of All India Traders (CAIT), which represents millions of brick-and-mortar retailers, has opposed any move that could allow foreign e-commerce companies to gain greater control over supply chains.
The organisation has argued that the new provision could be misused by large foreign companies to expand their control over sourcing, inventory and distribution.
“A robust monitoring mechanism must be put in place to ensure there is no misuse of this provision. Given the past track record of several large tech companies … strict oversight is essential,” CAIT Secretary General Praveen Khandelwal said.
The concerns come after India’s antitrust watchdog investigated Amazon and Flipkart in 2024 over allegations that the companies gave preferential treatment to select sellers on their platforms.
The companies have denied the allegations.
Retailer groups fear that allowing foreign-funded platforms to own inventory, even for exports, could make it harder for regulators to monitor the separation between export operations and domestic sales.
Could this lead to wider opening?
GTRI has warned that the export-only exception may eventually create pressure for broader changes to India’s e-commerce FDI policy.
Once foreign-funded platforms are allowed to own and manage inventory in India, the think tank argued, it could become difficult to ensure that the model remains entirely separate from domestic operations.
Maintaining distinct inventories for exports and domestic sales could create monitoring challenges, it said.
The export exception could therefore become a potential stepping stone towards a broader relaxation of India’s restrictions on inventory-based e-commerce.
That would mark a far more significant policy shift and could intensify opposition from small retailers.
India’s e-commerce market is expected to expand sharply in the coming years. A Google and Deloitte report in April estimated that the market could reach $250 billion by 2030, compared with roughly $90 billion currently.
Amazon and Flipkart are among the dominant players in the sector.
The government’s latest decision seeks to use the expansion of e-commerce to boost exports and connect Indian manufacturers with global consumers.
But it also reopens a long-running debate over how far India should allow foreign companies to participate directly in its retail supply chains — and whether a policy change designed for exports could eventually reshape the rules governing India’s domestic online retail market.
With inputs from agencies.
