Online Sellers Seek FDI in an Inventory-Based Model of E-commerce for Export Purposes

According to a senior government source, the e-commerce sector has urged that the government allow foreign direct investment (FDI) in inventory-based online trading models exclusively for export reasons.

The country’s FDI policy currently prohibits foreign direct investment in the inventory-based model of e-commerce. It is only permitted in businesses that follow a marketplace model.

Santosh Kumar Sarangi, Director General of Foreign Trade (DGF), said that many initiatives are being taken to enhance exports via e-commerce. He said that e-commerce players have requested that the Department of Promotion of Industry and Internal Trade (DPIIT) reconsider the FDI policy on this subject.

“For export purposes, if these (rules) could be revisited is something that we are requesting the DPIIT to examine and explore… and this could be one step forward for creating the e-commerce export zones that DGFT and its team has been working on,” Sarangi said here at a conference on e-commerce exports.

Speaking about the steps they are taking to promote exports through the e-commerce medium, he stated that many of these exporters, even the smaller ones, are subject to a mandatory GST regime, so the directorate is working with the Department of Revenue (doR) to see if there could be a scheme similar to the ‘composition levy scheme’ for smaller players to waive this mandatory GST until they reach a certain threshold of export value.

“Similarly, exports through e-commerce many a time are not getting benefits like duty drawback or DGFT schemes like Remission of Duties and Taxes on Exported Products (RoDTEP) or Rebate of State and Central Taxes and Levies (RoSCTL). So we are now working with Express Cargo Clearance Systems (ECCS) and postal bill of exports to ensure that the shipping bills flow directly so that these kinds of exports also get covered under these kinds of schemes,” he said.

He further said that the DGFT is collaborating with the Department of Post to enhance and develop Dak Niryat Kendras and foreign post offices (FPOs).

The Department of Posts’ goal is to establish 1,000 such Kendras that will function in a hub-and-spoke format with the FPOs to guarantee that export consignments arrive as soon as possible, acquire customs clearance, and are despatched overseas.

He noted that the agency is collaborating with the US Postal Service and postal agencies from other nations to establish a comprehensive online tracking system for e-commerce export consignments.

Furthermore, Sarangi said that one of the major priorities is to provide storage and speedy packaging clearance services from e-commerce export zones. “However, the current policy environment does not support this because the export-oriented unit (EOU) model is solely for manufacturing.” But in this case, we’re talking about a facility that does some processing and packing rather than manufacturing,” he said.

So how “we implement an EOU model” for e-commerce exports is something “we are working” on with the Department of Revenue, and “hopefully going forward, we will be able to convince DOR on the feasibility of this model,” he said, adding that the DGFT is attempting to raise awareness and importance of e-commerce exports in various ways.

Until recently, the export ecosystem was oriented on a B2B transfer of products by air and sea.

“The possibility that our people will be able to sell their brand to the entire globe using e-commerce platform is something which would require a lot of mindset change…So we are working with the DoR, RBI, and the DPIIT to see how this mindset change can come,” he said.

Within DGFT, he said, they are ensuring that all their regional authorities get acquainted with the nuances of e-commerce and then take this initiative to train potential e-commerce exporters.

They are also looking at joining hands with private sector players to promote e-commerce exports and create this awareness at the field level. “To begin with, we are joining hands with Amazon and we are signing an MoU with them to do a pilot in 20 districts where we will try to train e-commerce exporters. Similarly, we are working with Walmart and Flipkart to do it in a few more districts. We are also in talks with eBay to ensure that we take more and more districts and try this model,” he added.

He believes that the industry has enormous potential since highly educated individuals are joining it and that a pool of mentors inside India may be formed to assist and advise future exporters in the field.

“In the coming days, we will focus on creating a pool of mentors in our country to guide e-commerce exporters. I can foresee that the e-commerce ecosystem is going to evolve in a much more rapid manner. It is going to explode and possibly it will be one of the biggest feeders in realizing the dream of USD 2 trillion worth of goods and services exports” by 2030, he said.