UPSC Prelims Practice Questions — Govt. eases FDI rules for e-com firms, first big relaxation in years

Q1. The formal distinction between the 'marketplace-based' and 'inventory-based' models of e-commerce was first introduced into India's Foreign Direct Investment policy through which one of the following instruments?

  • A. Press Note 2 (2018 Series)
  • B. Press Note 3 (2016 Series)
  • C. Press Note 3 (2026 Series)
  • D. The FEMA (Export of Goods & Services) Regulations, 2015

Q2. Under the marketplace-model conditions for e-commerce FDI, the total sales value that a single seller (together with its group companies) may generate on a platform in a financial year is capped at what proportion of that platform's total sales value?

  • A. 20 per cent
  • B. 15 per cent
  • C. 25 per cent
  • D. 40 per cent

Q3. The July 2026 relaxation permitting inventory-based e-commerce FDI for exports of India-made goods was effected through which instrument and by which body?

  • A. Press Note 3 (2026 Series), issued by the Reserve Bank of India under FEMA
  • B. Press Note 2 (2026 Series), issued by the DPIIT
  • C. An amendment to the Foreign Trade Policy 2023 by the Directorate General of Foreign Trade
  • D. Press Note 3 (2026 Series), issued by the DPIIT under the Ministry of Commerce & Industry

Q4. With reference to the 2026 relaxation of e-commerce FDI rules, consider the following statements: 1. Inventory-based FDI is permitted exclusively for the export of goods manufactured and/or produced in India. 2. Entities using this route must comply with the Foreign Trade Policy 2023 and the FEMA (Export of Goods & Services) Regulations, 2015. 3. The relaxation additionally permits inventory-based FDI for domestic B2C sale of India-made goods. 4. Alongside this change, FDI in multi-brand retail trading was simultaneously raised to 100 per cent. Which of the statements given above are correctly identified?

  1. Inventory-based FDI is permitted exclusively for the export of goods manufactured and/or produced in India.
  2. Entities using this route must comply with the Foreign Trade Policy 2023 and the FEMA (Export of Goods & Services) Regulations, 2015.
  3. The relaxation additionally permits inventory-based FDI for domestic B2C sale of India-made goods.
  4. Alongside this change, FDI in multi-brand retail trading was simultaneously raised to 100 per cent.
  • A. 1, 2 and 3
  • B. 1 and 2 only
  • C. 2 and 4 only
  • D. 1 and 4 only

Q5. The conditions requiring 'fair and non-discriminatory' treatment of sellers and barring marketplace entities from mandating exclusive-selling arrangements belong to which year's Press Note series?

  • A. 2016 Series
  • B. 2018 Series
  • C. 2019 Series
  • D. 2020 Series

Q6. In India's e-commerce FDI framework, an 'inventory-based model of e-commerce' is best defined as one in which:

  • A. the e-commerce entity provides an information-technology platform acting as a facilitator between buyers and sellers
  • B. the e-commerce entity holds equity in the vendor companies whose goods are stocked on its platform
  • C. the e-commerce entity owns the inventory of goods and services and sells them directly to consumers
  • D. the e-commerce entity maintains warehouses used solely for third-party sellers' goods under a fulfilment arrangement

Q7. Which one of the following most precisely describes the role of the Department for Promotion of Industry and Internal Trade (DPIIT) in India's FDI framework?

  • A. It is the nodal department for formulation of the Government's FDI policy, functioning under the Ministry of Finance
  • B. It is the nodal department for formulation of the Government's FDI policy, functioning under the Ministry of Commerce & Industry
  • C. It grants prior approval for all foreign investments made under the automatic route
  • D. It notifies FDI-related amendments to FEMA in its capacity as the regulator of foreign exchange

Q8. Consider the following statements distinguishing the roles of different agencies in India's foreign-investment and trade framework: 1. It is the DPIIT, and not the RBI, that is the nodal department for formulating FDI policy. 2. Foreign investment under the government route requires prior approval routed through the Foreign Investment Facilitation Portal, unlike the automatic route. 3. The DPIIT administers the Foreign Trade Policy, whereas the DGFT formulates the FDI policy. Which of the statements given above is/are correct?

  1. It is the DPIIT, and not the RBI, that is the nodal department for formulating FDI policy.
  2. Foreign investment under the government route requires prior approval routed through the Foreign Investment Facilitation Portal, unlike the automatic route.
  3. The DPIIT administers the Foreign Trade Policy, whereas the DGFT formulates the FDI policy.
  • A. 2 and 3 only
  • B. 1 and 3 only
  • C. 1 and 2 only
  • D. 1, 2 and 3

Q9. In India's FDI policy, 'multi-brand retail trading' is best understood as:

  • A. retail sale of goods of a single brand to consumers, in which 100 per cent FDI is allowed under the automatic route
  • B. wholesale cash-and-carry trading of goods of many brands, in which 100 per cent FDI is allowed under the automatic route
  • C. online retail of goods of many brands under the marketplace model, in which 100 per cent FDI is allowed
  • D. retail sale of goods of many brands to consumers, in which FDI up to 51 per cent is allowed under the government-approval route

Q10. With reference to the conditions attached to FDI in multi-brand retail trading in India, consider the following statements: 1. FDI is capped at 51 per cent and requires prior government approval. 2. The foreign investor must bring in a minimum FDI of US$100 million. 3. At least 50 per cent of the total FDI must be invested in back-end infrastructure within three years. 4. Retail outlets may be opened in any city across all States and Union Territories without exception. Which of the above is/are NOT correct?

  1. FDI is capped at 51 per cent and requires prior government approval.
  2. The foreign investor must bring in a minimum FDI of US$100 million.
  3. At least 50 per cent of the total FDI must be invested in back-end infrastructure within three years.
  4. Retail outlets may be opened in any city across all States and Union Territories without exception.
  • A. 1 and 2
  • B. 3 only
  • C. 2 and 4
  • D. 4 only

Q11. With reference to the automatic and government routes for FDI in India, consider the following statements: 1. Under the automatic route, a foreign investor does not require prior government approval. 2. Investment under the government route requires prior approval, generally routed through the Foreign Investment Facilitation Portal. 3. Multi-brand retail trading and broadcasting fall entirely under the automatic route and need no approval whatsoever. 4. Foreign investment in defence beyond 74 per cent generally requires government approval. Which of the above is/are NOT correct?

  1. Under the automatic route, a foreign investor does not require prior government approval.
  2. Investment under the government route requires prior approval, generally routed through the Foreign Investment Facilitation Portal.
  3. Multi-brand retail trading and broadcasting fall entirely under the automatic route and need no approval whatsoever.
  4. Foreign investment in defence beyond 74 per cent generally requires government approval.
  • A. 3 only
  • B. 1 and 2
  • C. 3 and 4
  • D. 1 only

Q12. E-commerce entities using the newly permitted inventory-based model for exports must operate in accordance with the provisions of which of the following?

  • A. The Foreign Trade Policy 2015-20 and the FEMA (Non-Debt Instruments) Rules, 2019
  • B. The Consumer Protection (E-Commerce) Rules, 2020 and the Foreign Trade Policy 2023
  • C. The Foreign Trade Policy 2023 and the FEMA (Export of Goods & Services) Regulations, 2015
  • D. The FEMA (Export of Goods & Services) Regulations, 2015 and the Companies Act, 2013