FDI Easing in E-Commerce Could Pave Way for Wider Opening of Online Retail Sector: GTRI

 The government's decision to ease certain norms for foreign investment in e-commerce is expected to benefit large American companies and could pave the way for a wider opening of India's online retail sector, think tank GTRI said on Thursday.

The government on Thursday permitted FDI in an inventory-based e-commerce model "exclusively" for export purposes, a move which will help increase India's outbound shipments without impacting the businesses of small retailers.

These firms will have to export goods that are manufactured or produced in India.

"The Indian government has proposed a major relaxation of its long-standing restrictions on foreign investment in e-commerce, a move that is expected to benefit large American companies such as Amazon and could pave the way for a wider opening of India's online retail sector," GTRI Founder Ajay Srivastava said.

Until now, foreign-funded e-commerce firms were allowed to operate only as marketplaces, where they connected buyers and sellers without owning the products.

He said the new policy allows them to purchase, store and export goods directly from their own inventory.

"India has maintained this distinction for nearly a decade. Under the marketplace model, the platform acts only as a digital intermediary, earning commissions while independent sellers own the goods," he added.

Under the inventory-based model, the platform owns the goods and sells them directly, like an online retailer. It can prioritise and squeeze the sellers, Srivastava said.

He also said that India has repeatedly granted unilateral concessions to US commercial interests without obtaining equivalent market access for Indian exports.

"Had these measures been negotiated as part of a trade agreement, India could have exchanged them for commercially meaningful US concessions.

Instead, by offering them in advance, India is eroding its negotiating leverage and reducing its ability to secure reciprocity in future trade talks," he said.

India permitted 100 per cent FDI in the marketplace model but prohibited foreign investment in the inventory model because it would effectively allow foreign companies to enter multi-brand retail, a sector where FDI has remained tightly restricted, he said.

He added that the ban was introduced to protect millions of small retailers from the market power of global e-commerce giants using deep discounts, exclusive products and integrated logistics.

It also aimed to prevent foreign companies from bypassing India's restrictions on multi-brand retail by selling directly through online platforms, he said.