To facilitate greater participation of MSMEs in global e-commerce exports, the Directorate General of Foreign Trade (DGFT) has proposed introducing an inventory-based e-commerce export model. Under this framework, third-party export entities would hold inventory and manage backend processes on behalf of MSMEs.

 To operationalise the model, DGFT has also suggested amendments to e-commerce FDI regulations, specifically reviewing the current prohibition on inventory-based e-commerce for this export-only carve-out.

 In its proposal (a copy of which has been reviewed by TNIE), DGFT highlighted that less than 10% of MSMEs selling online domestically participate in global e-commerce exports, primarily due to complex documentation, compliance requirements, packaging standards, limited expertise, and high logistics costs.

 As per the draft framework, the model will be strictly export-only — inventory held by export entities must be exclusively for exports (Export Inventory) and cannot be sold or diverted into the domestic tariff area (DTA). Any diversion would be considered a contravention attracting penalties. Only goods manufactured or produced in India and procured from domestic, GST-registered MSME sellers will qualify under this model.

 Export entities will also be required to establish internal grievance redressal systems to resolve seller complaints within 15 working days. Unresolved issues may be escalated to DGFT, which must provide a resolution within 30 days.

A key safeguard for MSMEs is the mandatory pass-through of export-linked benefits. While export entities will be entitled to claim incentives such as GST refunds, duty drawback, and RoDTEP, they will be required to pass these benefits on to MSME sellers on a pro-rata basis.

 Designated export entities would act as intermediaries, handling paperwork, logistics coordination, and even managing refunds or product returns. They would also be able to access export-related incentives, with the government examining mechanisms to ensure that a share of these benefits flow directly to MSMEs.

 DGFT has also proposed strict penalties for non-compliance such as inventory diversion or delayed settlement of benefits. Violations could lead to suspension of DGFT registration, forfeiture of incentives, debarment from Foreign Trade Policy (FTP) schemes for a minimum of two years, and penalties of up to 200% of the undue benefit claimed.