Centre Weighs Pilot E-Commerce Inventory Model With UK Under FTA, Gujarat To Serve As Local Base

(MENAFN- Live Mint)

New Delhi: India is considering a pilot project to allow foreign-funded e-commerce companies to buy goods from local vendors, stock them, and sell to consumers abroad, in a shift away from the current rules that permit these firms to operate only as a marketplace, connecting buyers and sellers.

The plan is likely to be launched first with the UK-India's new free trade agreement partner . Under the proposal, foreign-funded e-commerce companies can directly buy goods in India and export them to the UK, bypassing the current marketplace-only restriction, two people aware of the matter said.

The government's move to allow inventory-based business model for e-commerce firms is aimed at boosting foreign direct investment (FDI) -India expects to achieve $100 billion in FDI in FY26-and diversify its exports, they said.

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Gujarat has emerged as the preferred state to host the pilot project, which would allow e-commerce firms to own and sell products directly to consumers in the UK, instead of only operating as online marketplaces, said the first person cited earlier.

At present, India's FDI rules don't allow foreign-funded e-commerce companies to operate under an inventory-based model. They can only operate as a neutral, digital marketplace platform. The same restrictions apply to exports - they can facilitate exports by third-party sellers, and not on their own. However, a fully Indian e-commerce company can own inventory and sell the goods both locally and abroad.

After the pilot project, this inventory-based model may be rolled out for the other 14 FTA partners that India has signed deals with, this person said. The initiative comes against the backdrop of India's push to double its exports with FTA partners and increase the FDI flow.

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Under the proposed inventory-based model, dedicated export entities would hold stock, manage customs clearances, and handle packaging on behalf of small businesses.

“The issue was discussed at a recent meeting in the commerce ministry with key stakeholders, including the Swadeshi Jagran Manch and representatives of domestic retailers. Representatives of leading e-commerce players were also in attendance," said the second person.

“Although domestic groups have raised concerns that products stored in inventory might be diverted to the local market instead of being sold abroad, the government has mandated the Director General of Foreign Trade (DGFT) to run a pilot project," said the second person.

“The pilot will help evaluate its effectiveness, and once domestic stakeholders are convinced, the inventory model will be rolled out for e-commerce players," the person said.

Queries sent to the ministries of commerce, external affairs, and the British Embassy in New Delhi remained unanswered.

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The development comes in the backdrop of the ongoing India-US talks to finalize a Bilateral Trade Agreement (BTA) by November. The talks between the two nations resumed on 16 September after a pause of over a month due to India drawing its red lines on agriculture, dairy, and genetically modified crops. The US has imposed a 50% tariff on India-the highest so far-which includes a 25% reciprocal tariff and a 25% penalty for buying Russian oil.

“For small and medium exporters, this could reduce dependence on intermediaries and make it easier to reach consumers in markets like the UK. At the same time, it is important that safeguards are in place to ensure that the model remains export-focused and does not affect domestic retailers," said Vinod Kumar, president, India SME Forum.

India and the UK signed the landmark free trade agreement on 24 July, ending years of negotiations and marking a new phase in their economic partnership. The deal will give a major push to bilateral trade and investment, offering greater market access across key sectors.

The FTA-formally known as the Comprehensive Economic and Trade Agreement-seeks to increase bilateral trade to $120 billion by 2030 by eliminating or significantly reducing customs duties on a wide range of products.

India's merchandise exports to the UK rose 12.6% to $14.5 billion in 2024-25, while imports grew marginally by 2.3% to $8.6 billion. Total bilateral trade stood at $21.34 billion in 2023-24, up from $20.36 billion in the previous year.

"Allowing the inventory model for e-commerce, specifically for exports, can be a game-changer for Indian brands. Today, demand for Indian products is growing across global markets, but exporters often struggle with supply chain inefficiencies, high lead times, and lack of scale. The inventory model will enable companies to stock products closer to the point of demand, ensuring faster delivery, better customer experience, and greater competitiveness against global peers," Ravi Saxena, chief executive and founder of Wonderchef, said. "For consumer brands like Wonderchef, this would open significant opportunities to serve international customers directly, expand into new geographies, and build stronger brand equity abroad. More importantly, it can help India move up the value chain in global trade, positioning us as a reliable source of high-quality, design-led products."

Earlier, Mint reported on 13 March that American trade negotiators are pushing for a level-playing field for US-based e-commerce companies such as Amazon and Walmart-owned Flipkart against Indian firms such as Reliance, Tata and others.

Mint has also earlier reported on 13 February that India's proposed comprehensive e-commerce policy, which has drawn significant interest from global players like Amazon and Walmart, has been put on hold as countries reassess their priorities following a major regime change in the US.

According to an Invest India report, the country's e-commerce market is set to grow to $325 billion and the digital economy to $800 billion by 2030.

India, with 881 million internet users, is the world's second-largest online market. Its growing digital economy could make it the third-largest online retail market by 2030, as per the Invest India report.

The global e-commerce market was valued at about $26.8 trillion in 2024 and is projected to swell to $214.5 trillion by 2033, as per Mordor Intelligence.

As of now, India has 15 partners with whom it has free trade agreements (FTAs). In reply to a question in the Lok Sabha on 18 March, Union minister of state for commerce Jitin Prasada said that India has signed 14 FTAs with its trading partners.

Trade with these partners aggregated to about $118 billion in FY25. In FY24, India's total exports to the 14 FTA partners stood at $122.75 billion.

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