Inventory vs marketplace model: why FDI rules shape Indian e-commerce

In an inventory-based model, the company owns the stock. It buys products, stores them in its warehouses and sells them to the customer, so it records the sale value as revenue and bears the risk of unsold goods. In a marketplace model, the company runs a platform where independent sellers list their own products. The platform earns commissions and fees and does not own the goods.

The difference matters for accounting, for margins and, in India, for the law. Foreign investors face different permissions depending on which model a company follows.

Many shoppers never see the difference, because the app looks the same either way. The difference shows up in who sets the price, who holds the stock and who answers when something goes wrong.

The consolidated FDI Policy, administered by the Department for Promotion of Industry and Internal Trade (DPIIT), allows 100% foreign direct investment (FDI) in marketplace e-commerce under the automatic route. It does not allow FDI in the inventory-based model for sales to consumers. The core rules were set by Press Note 2 of 2018 and apply from 1 February 2019. Foreign exchange rules sit under the FEMA Non-debt Instruments Rules 2019.

As of November 2026, check the current consolidated policy for any amendment.

Press Note 2 made ownership or control of seller inventory the main test. A marketplace is treated as controlling a vendor's inventory if more than 25% of that vendor's purchases are from the marketplace or its group companies. In that case the business can be treated as an inventory model, which is not allowed for foreign-funded firms.

The note adds other conditions: sellers in which the marketplace or its group holds equity cannot sell on that platform, marketplaces cannot make sellers sell exclusively with them and cannot influence the price of goods. Platforms may still offer warehousing, logistics and payment collection.

• Marketplace: 100% FDI allowed under the automatic route.
• Inventory model for consumers: no FDI.
• Control test: more than 25% of a vendor's purchases from the marketplace or its group.
• No pricing influence and no exclusivity requirements.

Both are foreign-invested marketplace operators, so they cannot hold stock for sale to consumers. Their platforms list independent sellers, some of whom are third-party firms that buy from brands and sell on the platform, within the 25% limit and other conditions. The rule has been a source of legal disputes and regulatory attention in the sector, so details are contested.

Quick commerce firms use dark stores, which are small local warehouses for fast delivery. Some operate through separate seller entities that hold the stock and are owned in compliance with the FDI rules, while the foreign-funded entity runs the marketplace. Other companies are fully Indian-owned, which allows an inventory model. Structures differ by company, and reports about them have changed, so the filings and regulatory notes are the better guide than headlines.

The restriction covers business-to-consumer inventory. Business-to-business trade, where a wholesaler sells to other businesses, is treated separately. Foreign firms may also hold inventory in some cases such as food products made or produced in India, where the policy allows 100% FDI in trading including through e-commerce for food made and produced in India. Exports are handled by separate rules. Policy text is detailed, so read the current version before relying on an exception.

Inventory businesses record the full sale as revenue, so revenue looks large, but the gross margin is the difference between the selling price and the cost of goods, often a modest percentage. Marketplace businesses record commission and fees as revenue, so revenue looks small against order value, but the margin on that revenue is higher because the goods never sit on the company's books.

This is why analysts compare gross merchandise value (GMV) with revenue, and why a marketplace's take rate is a key number. Moving from one model to the other changes reported revenue sharply without any change in the underlying business. Some companies run a hybrid, with a marketplace for outside sellers and a separate inventory arm owned in line with the rules.

The inventory model carries stock risk: unsold goods, expiry, damage and the cash tied up in warehouses. It also gives the company control over quality, price and delivery, which can improve the customer experience. The marketplace model carries quality-control and trust risk, since the platform depends on independent sellers to deliver what they promise, and compliance risk, since the platform must stay inside the FDI conditions on control and pricing.

Regulators can also review how a platform treats its sellers, for example whether some sellers receive preferential treatment. These disputes have affected large platforms and are a reason for startups to take legal advice on structure early.

Read how the company describes its revenue. If revenue is called commission, fees or services income, it is acting as a marketplace or agent. If it is called sale of goods, with a cost of goods sold line below it, it is acting as a principal holding inventory. The notes to the accounts explain the choice under the revenue standard, Ind AS 115.

Look also at the ratio of order value to revenue. A marketplace may report a large gross order value and a revenue figure that is a small percentage of it. An inventory-led company has revenue close to order value. When a company switches model or restructures its entities, the first quarter after the change is hard to compare with earlier periods, so read the management note on the change.

Finally, read the related-party notes. Where a marketplace's group sells to a seller entity that then sells on the platform, those transactions are disclosed, and they show how closely linked the two sides are.

A startup that wants foreign venture funding often chooses the marketplace model, or splits into entities so the investment goes into the marketplace company. An Indian-owned direct-to-consumer brand, which sells its own products, is a different kind of company and can hold stock, as in the D2C model. Investors reading a prospectus should check which entity holds the stock and who owns it.

This guide is general information, not legal advice. FDI structures need a lawyer and a check against the current policy.