India wants its over 90 million registered MSMEs to export more through e-commerce, and to that end, has opened the inventory-based e-commerce export model to foreign investment. The move comes as India seeks to widen its exporter base and make it easier for smaller manufacturers to access global markets. Can opening this route to foreign investment take more of India's small manufacturers global?

Why did India change its FDI rules for export-focused e-commerce?

India has historically allowed 100% foreign investment in marketplace e-commerce, where platforms connect buyers and sellers, but restricted foreign-funded inventory-based e-commerce. Earlier this year, the government created an export-only exception, allowing foreign-funded e-commerce entities to own inventory of goods manufactured or produced in India for sale overseas. The detailed framework was announced in August, allowing such companies to operate as registered exporters-on-record. The change comes alongside a broader push to make exports easier for smaller businesses.

The government has removed the ₹10 lakh cap on commercial exports via courier mode, is setting up E-Commerce Export Hubs for logistics and customs support, and has rolled out the ₹25,060-crore Export Promotion Mission to provide finance, compliance, and market-access support. The FDI change is one piece of a larger effort to make exporting easier for India's small businesses.

How big are India's MSMEs when it comes to exports?

India's MSMEs are already major exporters. Products from the sector accounted for 48.58% of India's merchandise exports in FY25, while the number of exporting MSMEs rose from 52,849 in FY21 to 1,73,350 in FY25. So why the push for e-commerce exports? The answer lies in the fact that digital commerce can potentially make exporting accessible to businesses that cannot justify building a conventional export operation. NITI Aayog, in its February 2026 Trade Watch, said, "E-Commerce has become an important trade channel by lowering transaction and distribution costs and enabling firms, especially smaller sellers, to access domestic and cross-border markets at scale." It estimated, in the report, India's e-commerce exports at just $4-5 billion in FY23, while projecting the potential of $200-300 billion by 2030. The goal is to use the ease of digital commerce to bring a wider set of small producers into global markets who find the conventional export channel too challenging.

Why is it difficult for a small manufacturer to become an exporter?

The challenge is not just finding an overseas buyer. A small manufacturer has to navigate customs, GST and foreign-exchange procedures, product standards, certification, packaging, payments, logistics and returns. These fixed costs can be difficult to absorb when individual shipments are small. India's e-commerce export system also has specific gaps. There are no dedicated customs codes for such shipments, unlike China, while returned goods can be treated as fresh imports and attract duties. NITI Aayog also points to limited support for warehousing, marketing and technology and low awareness among MSMEs about cross-border e-commerce. The number of exporting MSMEs has more than tripled since FY21, but the infrastructure and capabilities needed to serve overseas customers remain harder for smaller firms to build.

What exactly can export-focused e-commerce change?

The new model could remove some of those fixed costs. Under the framework, a registered exporter-on-record can procure goods from Indian sellers against confirmed overseas orders and take responsibility for export documentation, customs, destination-country compliance, testing and certification, packaging, fulfilment, logistics and reverse logistics. That means a small manufacturer can potentially reach a foreign customer without building all of this infrastructure itself. But the policy has limits. It can lower the cost of entering an export market, but it cannot make a product cheaper, improve manufacturing quality, provide production scale or create demand. It also does not solve working-capital or branding challenges, issues that MSMEs grapple with. The new model lowers the distribution barriers for potential small exporters, but larger hurdles remain.

Can India build a China-scale e-commerce export engine?

China shows both the scale of the opportunity and how much more India needs to build. Chinese MSMEs were already exporting more than $200 billion through e-commerce in 2022, according to the NITI Aayog report, compared with India's $4-5 billion e-commerce exports estimated for FY23. NITI's $200-300 billion potential for India by 2030 is therefore ambitious. China did not achieve its scale through foreign investment or platforms alone. It built dedicated customs codes and digital clearance systems, logistics networks, overseas warehouses and streamlined returns alongside a dense manufacturing base. India is beginning to build some of these pieces, but the gap remains large. The FDI change can remove one barrier. But the real change will happen once the supporting infrastructure is in place for India's small manufacturers.

India wants its over 90 million registered MSMEs to export more through e-commerce, and to that end, has opened the inventory-based e-commerce export model to foreign investment. The move comes as India seeks to widen its exporter base and make it easier for smaller manufacturers to access global markets. Can opening this route to foreign investment take more of India's small manufacturers global?

Why did India change its FDI rules for export-focused e-commerce?

India has historically allowed 100% foreign investment in marketplace e-commerce, where platforms connect buyers and sellers, but restricted foreign-funded inventory-based e-commerce. Earlier this year, the government created an export-only exception, allowing foreign-funded e-commerce entities to own inventory of goods manufactured or produced in India for sale overseas. The detailed framework was announced in August, allowing such companies to operate as registered exporters-on-record. The change comes alongside a broader push to make exports easier for smaller businesses.

The government has removed the ₹10 lakh cap on commercial exports via courier mode, is setting up E-Commerce Export Hubs for logistics and customs support, and has rolled out the ₹25,060-crore Export Promotion Mission to provide finance, compliance, and market-access support. The FDI change is one piece of a larger effort to make exporting easier for India's small businesses.

How big are India's MSMEs when it comes to exports?

India's MSMEs are already major exporters. Products from the sector accounted for 48.58% of India's merchandise exports in FY25, while the number of exporting MSMEs rose from 52,849 in FY21 to 1,73,350 in FY25. So why the push for e-commerce exports? The answer lies in the fact that digital commerce can potentially make exporting accessible to businesses that cannot justify building a conventional export operation. NITI Aayog, in its February 2026 Trade Watch, said, "E-Commerce has become an important trade channel by lowering transaction and distribution costs and enabling firms, especially smaller sellers, to access domestic and cross-border markets at scale." It estimated, in the report, India's e-commerce exports at just $4-5 billion in FY23, while projecting the potential of $200-300 billion by 2030. The goal is to use the ease of digital commerce to bring a wider set of small producers into global markets who find the conventional export channel too challenging.

Why is it difficult for a small manufacturer to become an exporter?

The challenge is not just finding an overseas buyer. A small manufacturer has to navigate customs, GST and foreign-exchange procedures, product standards, certification, packaging, payments, logistics and returns. These fixed costs can be difficult to absorb when individual shipments are small. India's e-commerce export system also has specific gaps. There are no dedicated customs codes for such shipments, unlike China, while returned goods can be treated as fresh imports and attract duties. NITI Aayog also points to limited support for warehousing, marketing and technology and low awareness among MSMEs about cross-border e-commerce. The number of exporting MSMEs has more than tripled since FY21, but the infrastructure and capabilities needed to serve overseas customers remain harder for smaller firms to build.

What exactly can export-focused e-commerce change?

The new model could remove some of those fixed costs. Under the framework, a registered exporter-on-record can procure goods from Indian sellers against confirmed overseas orders and take responsibility for export documentation, customs, destination-country compliance, testing and certification, packaging, fulfilment, logistics and reverse logistics. That means a small manufacturer can potentially reach a foreign customer without building all of this infrastructure itself. But the policy has limits. It can lower the cost of entering an export market, but it cannot make a product cheaper, improve manufacturing quality, provide production scale or create demand. It also does not solve working-capital or branding challenges, issues that MSMEs grapple with. The new model lowers the distribution barriers for potential small exporters, but larger hurdles remain.

Can India build a China-scale e-commerce export engine?

China shows both the scale of the opportunity and how much more India needs to build. Chinese MSMEs were already exporting more than $200 billion through e-commerce in 2022, according to the NITI Aayog report, compared with India's $4-5 billion e-commerce exports estimated for FY23. NITI's $200-300 billion potential for India by 2030 is therefore ambitious. China did not achieve its scale through foreign investment or platforms alone. It built dedicated customs codes and digital clearance systems, logistics networks, overseas warehouses and streamlined returns alongside a dense manufacturing base. India is beginning to build some of these pieces, but the gap remains large. The FDI change can remove one barrier. But the real change will happen once the supporting infrastructure is in place for India's small manufacturers.