Govt pushes for e-commerce exports amid US tariff hit; MSMEs ask govt to allow FDI in inventory-led model

In the backdrop of rising US tariffs on Indian goods, the Indian government has stepped up its efforts to boost e-commerce exports, positioning digital trade as a crucial pathway for small and medium enterprises (MSMEs) to access international markets. At the same time, industry voices, particularly from the MSME sector, are demanding a more flexible policy framework, including allowing foreign direct investment (FDI) in inventory-led e-commerce models.

This dual narrative reflects both opportunities and challenges as India recalibrates its trade strategy in response to global protectionism and shifting supply chain dynamics.

US Tariff Impact: Why India Is Concerned

The US, one of India’s largest export destinations, has imposed higher tariffs on multiple categories of goods including textiles, engineering products, chemicals, and leather items. These moves have raised concerns among Indian exporters who fear shrinking margins and loss of competitiveness in the American market.

According to trade experts, the US tariffs are expected to disproportionately affect MSMEs, which already face challenges such as rising input costs, logistics inefficiencies, and compliance requirements.

Govt’s Push for E-Commerce Exports

To counter tariff shocks and provide alternative routes, the Indian government is strongly advocating e-commerce exports. Platforms like Amazon Global Selling, Flipkart’s international tie-ups, and ONDC’s digital commerce network are being encouraged to help Indian manufacturers directly reach overseas consumers.

Key highlights of the government’s strategy include:

• Simplifying customs procedures for small-value consignments.
• Expanding digital trade hubs and e-commerce warehouses.
• Offering financial incentives and credit support to MSMEs adopting digital exports.
• Promoting Made-in-India brands on global online marketplaces.

This move is expected to reduce reliance on traditional export channels that are often dependent on large intermediaries and bulk shipments.

MSMEs Demand FDI in Inventory-Led Model

While the government is pushing for digital exports, MSMEs are urging policymakers to revisit India’s restrictive FDI rules in e-commerce. Currently, FDI is permitted only in the marketplace model, where platforms act as intermediaries connecting sellers and buyers. However, FDI in inventory-led models, where platforms directly own and sell goods, remains prohibited.

MSMEs argue that allowing FDI in inventory-led e-commerce could:

1. Bring greater investment in warehousing and logistics.
2. Ensure better price realization for small sellers.
3. Improve quality control and product standardization.
4. Strengthen India’s global competitiveness.

Comparative Outlook: Marketplace vs Inventory-Led Models

E-Commerce Export Growth Potential

The government has set an ambitious target of $200 billion worth of e-commerce exports by 2030, driven largely by MSMEs, handicrafts, textiles, electronics, and processed food.

Estimated Growth Projections for E-Commerce Exports

This clearly shows that e-commerce exports can emerge as a backbone for India’s foreign trade, especially when traditional export markets face uncertainties due to tariffs and geopolitical tensions.

MSME Voices: Challenges Beyond Tariffs

MSMEs, while supporting the government’s vision, have flagged several operational and structural hurdles that need urgent attention:

• High shipping and logistics costs, especially for small-value consignments.
• Taxation complexity across states for e-commerce shipments.
• Lack of export-oriented warehouses and fulfilment centers.
• Difficulty in accessing credit and working capital for scaling exports.
• Digital literacy gaps among smaller businesses.

Unless these challenges are addressed, industry experts believe the export potential may remain underutilized.

Global Competition and Supply Chain Shifts

Countries like China, Vietnam, and Bangladesh are aggressively investing in digital trade ecosystems, offering subsidies, logistics support, and cross-border trade infrastructure. India, despite its strong manufacturing base and skilled workforce, risks losing out unless policies evolve to make MSMEs more competitive.

Policy Outlook: What To Expect

The government is reportedly working on a comprehensive e-commerce export policy, which could include:

• A framework for digital trade facilitation.
• Simplified GST refunds for exporters.
• Dedicated export credit lines for e-commerce sellers.
• A potential review of FDI norms in e-commerce.

The ongoing debate around inventory-led FDI is expected to continue, with MSMEs pressing for flexibility and policymakers balancing growth with competition safeguards.

Conclusion

The twin issues of US tariffs and domestic policy restrictions are shaping the future of India’s export ecosystem. On one hand, the government’s push for e-commerce exports offers a promising new channel for global trade participation. On the other hand, MSMEs are demanding reforms in FDI norms, particularly in inventory-led models, to attract investment and boost competitiveness.

The success of this strategy will depend on how effectively India addresses logistics, credit, and policy bottlenecks while also securing a favorable position in global supply chains.

As the world moves deeper into digital-first commerce, India’s ability to empower its MSMEs through e-commerce reforms could well decide whether the country becomes a dominant force in global digital trade or remains constrained by outdated frameworks.

Disclaimer: This article is based on trade developments, government announcements, and MSME industry perspectives. It is intended for informational purposes only and should not be considered financial or policy advice.