Foreign Direct Investment(FDI) Liberalisation (Economy)
Foreign Direct Investment(FDI) Liberalisation (Economy)
Why In News:
The Department for Promotion of Industry and Internal Trade (DPIIT) has permitted FDI in the inventory based model of e-commerce, but exclusively for the export of goods manufactured or produced in India.
Source: The Indian Express, Page 15 and The Hindu, Page 15, 24 July 2026 - 'Govt allows FDI in inventory model for e-commerce exports' and 'Govt eases FDI rules for e-com firms, first big relaxation in years'
FDI Policy in E-commerce
Under the existing FDI policy, 100% FDI through the automatic route is allowed in the business-to-business (B2B) and marketplace models of e-commerce.
Earlier, FDI was not allowed in the B2C or inventory-based e-commerce model, where companies own goods and sell directly to consumers.
Now, this restriction has been relaxed only for exports, allowing e-commerce firms to hold inventory if it is used exclusively for exporting domestically produced goods.
It is expected to help Indian sellers, including small businesses, access global markets more easily while leaving the domestic B2C retail restriction untouched, so domestic small retailers remain protected.
It aligns the FDI framework with India's broader export promotion agenda under the Foreign Trade Policy, 2023.
Key Facts for Prelims
Foreign Direct Investment (FDI): Refers to investment made by a person residing outside India through capital instruments in an unlisted Indian company, or in at least 10% of the post-issue paid-up equity capital (on a fully diluted basis) of a listed Indian company.
It is generally a long-term, non-debt capital flow.
FDI Routes: Under India’s FDI framework, foreign investment can take place through two routes:
Automatic Route: No prior government approval is required; investors only need to notify the Reserve Bank of India after investment.
Examples include sectors like agriculture & animal husbandry, air transport services, automobiles, auto-components, and greenfield biotechnology.
Government Approval Route: Prior approval from the concerned ministry or department is mandatory.
Examples include banking & public sector, broadcasting content services, food retail trading, and digital news/media streaming.
Regulation: FDI in India is governed by the FDI Policy 2020 and the FEMA (Non-debt Instruments) Rules, 2019, under the Foreign Exchange Management Act.
The Department for Promotion of Industry and Internal Trade (under the Ministry of Commerce and Industry) formulates policy, while the RBI ensures implementation and compliance.
Prohibited Sectors: FDI is not permitted in areas such as atomic energy, gambling and betting, lotteries, chit funds, real estate (other than permitted activities), and tobacco manufacturing.
According to UNCTAD's World Investment Report 2026, India improved two ranks to become the 11th largest recipient of global FDI, with inflows rising by about 44 percent to USD 38.89 billion in 2025.