"India just opened e-commerce to foreign inventory models": what Press Note 3 (2026) actually changed

Since DPIIT issued Press Note 3 of the 2026 Series on 23 July 2026, we have had a steady stream of enquiries that begin the same way: "India has allowed FDI in inventory-based e-commerce — can we now stock and sell our own goods to Indian consumers?" The answer is no. The relaxation is real, but it is narrow, conditional, and — critically for anyone planning a capital raise or a warehouse lease right now — not yet operative until the corresponding FEMA notification is issued. Founders who read the headline and skipped the text are building the wrong entity.

Here is what the amendment does, what it deliberately does not do, and how to structure around it.

What the regulation actually says

India's e-commerce FDI framework sits in paragraph 5.2.15.2 of the Consolidated FDI Policy, given statutory force through the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 made under FEMA, 1999. Two models are defined:

Marketplace model — the entity provides an IT platform on a digital network acting as a facilitator between buyer and seller. It never owns the inventory. 100% FDI is permitted under the automatic route.

Inventory-based model — the entity owns the goods and sells directly to consumers. FDI has been prohibited entirely. Not "approval route" — prohibited. This is the rule that pushed Amazon and Flipkart into their well-documented seller-entity structures, and it is the rule that catches most foreign founders who assume a normal D2C model works in India.

Press Note 3 (2026 Series) carves a single exception into that prohibition. Foreign-invested Indian entities may now operate an inventory-based e-commerce model exclusively for the export of goods manufactured or produced in India. The intent is stated plainly in the Press Note: this is an export-promotion measure, positioned alongside the government's broader push to move Indian manufacturing onto global direct-to-consumer channels. It is not a liberalisation of domestic retail.

Three boundaries define the exception, and each one has been drawn tightly:

• Export only. The entity may hold inventory and sell it, but the transaction must be an export. Domestic B2C sale of owned inventory remains prohibited. An entity that runs both an Indian D2C storefront and an export channel off the same owned stock is non-compliant.
• Indian-origin goods only. The goods must be manufactured or produced in India. Importing finished goods into an Indian warehouse and re-exporting them does not qualify.
• Not yet in force. The Press Note states the change takes effect from the date of the corresponding notification under FEMA. Until the NDI Rules are amended, the operative statutory position is still the blanket prohibition. Press Notes announce policy; FEMA notifications create the legal right.

That third point is where the real risk sits. A Press Note is a policy pronouncement by DPIIT. Enforceability flows from the FEMA notification. Investing on the strength of the Press Note alone, before notification, is a FEMA contravention — not a technicality, and not cured by the fact that the policy was later notified.

The marketplace conditions that still bind

Because most foreign-funded platforms will continue to operate as marketplaces, it is worth restating the conditions attached to that route, since they are where compliance actually fails in practice:

• The marketplace entity may not own inventory or exercise ownership or control over the inventory of any seller on the platform. Control here is assessed substantively — warehousing arrangements, exclusive supply terms, and funding of a seller's stock purchases have all been argued to constitute control.
• No single vendor (including its group companies) may account for more than 25% of the sales effected through the marketplace.
• The marketplace may not directly or indirectly influence the sale price of goods on the platform, and must maintain a level playing field between sellers.
• The seller is responsible for warranty, guarantee, and post-sale service; the marketplace may not assume that liability as principal.
• Services such as logistics, warehousing, payment collection, and advertising may be provided to sellers, but on arm's-length, non-discriminatory terms.

Press Note 3 (2026 Series) does not soften any of these. A foreign-funded entity that qualifies for the new export-inventory exception and also runs a domestic marketplace is running two regulated activities in one company, and will need to demonstrate that the marketplace side owns nothing and controls nothing on the domestic leg.

Practical implications

The consequences of getting the model wrong are not theoretical, and they land on the Indian entity and its directors rather than on the offshore parent.

Compounding under Section 13 of FEMA. Where foreign investment has been received into an activity in which FDI is prohibited, the position is not curable by a simple filing. The investment itself is a contravention. Compounding applications go to the RBI, take months, and are disclosed. Penalties can extend to three times the sum involved.

A failed diligence at Series A. This is the more common commercial consequence. Institutional investors and their counsel test the e-commerce model against paragraph 5.2.15.2 line by line. An entity that has been holding inventory for domestic sale under a foreign-funded structure will not clear diligence, and the remediation — restructuring into a marketplace-plus-seller arrangement, or unwinding — is expensive and slow.

Exit difficulty. A contravention that has not been compounded sits on the file. It complicates the AD bank's willingness to process the FC-TRS on a share transfer, and it surfaces again on repatriation of sale proceeds.

Related-party seller structures attract scrutiny. The classic workaround — a marketplace entity plus an "independent" seller entity holding the stock — is subject to an explicit cap: no single vendor may account for more than 25% of the marketplace's sales, and the marketplace entity or its group companies may not exercise ownership or control over a seller's inventory. Structures that fail this test have been the subject of enforcement attention for years.

Step-by-step: what to do

If you are building an India e-commerce operation with foreign capital, work through this in order.

• Classify your model honestly before incorporation. Write down who takes title to the goods and at what point. If your Indian entity takes title and sells to an Indian consumer, you are inventory-based and FDI is prohibited. There is no drafting fix for this.
• If exports are the plan, wait for the FEMA notification. Track amendments to the NDI Rules, 2019 (or their successor — RBI's draft Foreign Exchange Management (Foreign Investment) Rules, 2026 is out for comment until 31 August 2026 and would replace the NDI Rules wholesale). Do not close a funding round predicated on the export-inventory model until the notification is published in the Gazette.
• Incorporate with the right objects clause. The MoA of the Indian company should describe the permitted activity accurately. A generic "trading" objects clause invites questions later; a clause that describes export of Indian-manufactured goods does not.
• File FC-GPR within 30 days of allotment. Foreign share subscription is reported on Form FC-GPR through the RBI's FIRMS portal (firms.rbi.org.in), within 30 days of allotment of shares, supported by a valuation certificate from a SEBI-registered merchant banker or a practising chartered accountant, and a KYC report from the remitter's bank. Late filing attracts Late Submission Fee.
• Segregate the export inventory operationally. Once notified, keep export stock in a separately identified location with its own books, and ensure the sales invoicing is export invoicing with corresponding shipping bills. If a revenue authority or your AD bank asks you to demonstrate that no owned inventory was sold domestically, you should be able to show it from records, not from assertion.
• Match the FEMA position to the customs and GST position. Exports are zero-rated under GST with refund of input tax credit, and the shipping bill is the primary evidence. Get an IEC (Importer Exporter Code) from DGFT before the first shipment. Realise and repatriate export proceeds within the prescribed period and file the corresponding EDPMS entries — unrealised export bills are their own FEMA exposure.
• Document any group-company seller relationship. If your structure involves a related seller entity supplying an Indian marketplace, paper the arm's-length terms and monitor the 25% vendor concentration limit continuously, not annually.

FAQ

Can a foreign-owned Indian company now sell its own products to Indian consumers online?
No. Press Note 3 (2026 Series) permits inventory-based e-commerce only for export of Indian-manufactured goods. The prohibition on foreign-invested inventory-based B2C sale within India is unchanged.

Is the exception available today?
Not yet as a matter of law. The Press Note states it takes effect from the date of the corresponding FEMA notification. Until the NDI Rules are amended, the prohibition remains the enforceable position. Plan for it; do not fund against it.

Does this change anything for a pure marketplace platform?
No. 100% FDI in the marketplace model under the automatic route was already permitted and continues, along with the existing conditions — no ownership or control over seller inventory, no influence over sale price, and the 25% single-vendor cap.

Do we need government approval, or is this automatic route?
The e-commerce marketplace model is on the automatic route — no prior government approval, only post-facto reporting via Form FC-GPR. The export-inventory exception, once notified, is expected to sit on the automatic route as well, since Press Note 3 does not introduce an approval requirement. Two separate filters still apply regardless of route: if any investor in the chain has direct or indirect ownership from a country sharing a land border with India, government approval is required under paragraph 3.1.1 (and, following Press Note 2 of 2026, a reporting obligation applies even where the approval threshold is not crossed); and sectoral caps elsewhere in your group's activities are assessed independently.

Planning India entry?

The e-commerce rules are one of several places where the Indian FDI framework behaves differently from what a founder's home-market intuition predicts — the distinction between a policy Press Note and an enforceable FEMA notification is another. Both are cheap to get right before incorporation and expensive to fix afterwards.

Start with a free structure review at makeitlegit.in.