In a bid to significantly expand the role of Indian micro, small, and medium enterprises (MSMEs) in global e-commerce exports, the Directorate General of Foreign Trade (DGFT) has floated a proposal for an inventory-based e-commerce export model. The move aims to simplify processes and reduce barriers that currently prevent MSMEs from participating in cross-border trade.
According to DGFT, less than 10% of MSMEs selling online domestically are engaged in exports, largely due to challenges such as complex documentation, compliance burdens, packaging standards, limited expertise and high logistics costs.
How the Model Works
Under the proposed framework, designated third-party export entities will hold inventory on behalf of MSMEs, manage backend processes, and coordinate logistics. Importantly, this inventory will be strictly "export-only" and cannot be sold in the domestic tariff area (DTA). Any diversion will be treated as a contravention, attracting severe penalties.
Only goods manufactured or produced in India and procured from GST-registered MSME sellers will qualify under the model.
Policy Changes on the Anvil
To operationalise the plan, DGFT has suggested a review of e-commerce FDI rules, which currently prohibit inventory-based models. This exemption would apply exclusively for exports, ensuring no overlap with domestic e-commerce regulations.
Safeguards for MSMEs
- Pass-through of export incentives: Export entities may claim GST refunds, duty drawback and RoDTEP, but must pass these benefits to MSMEs on a pro-rata basis.
- Grievance redressal: Export entities must resolve seller complaints within 15 working days. Escalated issues must be addressed by DGFT within 30 days.
- Compliance penalties: Violations such as inventory diversion or delay in benefit settlements could result in registration suspension, forfeiture of incentives, debarment from FTP schemes for two years, and fines of up to 200% of undue benefits claimed.
Implications for MSMEs
By outsourcing documentation, compliance, and logistics to professional export entities, MSMEs would be able to focus on production and innovation while still benefiting from global market access. The model also seeks to ensure that export-linked incentives flow directly to MSMEs, rather than being cornered by intermediaries.
Industry experts believe this initiative could unlock export potential for lakhs of small businesses, improve India's share in global e-commerce and support the government's larger vision of boosting MSME competitiveness worldwide.
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