In an uncharacteristic move for the tightly controlled ecommerce industry in India, the country’s government eased and relaxed foreign investment rules, allowing ecommerce companies to purchase items from small Indian sellers, and then turn around and sell them to their customers.
While the decision may lead to better exports for India, and allow for easier access to global markets for sellers, small retailers in India are worried that the change could be abused by large foreign companies.
India Eases Foreign Investment Rules
In an effort to boost exports through easier and increased access to global markets, India has decided to ease its tightly controlled foreign investment rules. This now allows ecommerce companies to buy items straight from Indian sellers, and then sell them to overseas customers.
Traditionally, this wasn’t allowed, and India barred foreign online retailers from directly buying and selling goods. Instead, as it tried to protect the many small sellers and retailers in India, the country only allowed foreign ecommerce brands to work like a marketplace that connected buyers and sellers.
This relaxation of the rules comes at a time when India and the USA are struggling to sign a trade agreement, with these ecommerce investment rules traditionally being a sore spot between the two sides.
The Move is a Big Win for Amazon and Other Large International Retailers
This decision by the Indian government is a big win for the likes of major brands like Amazon, the world’s largest ecommerce platform, and Walmart. In fact, Amazon has actually been lobbying for the change for many months.
Both Amazon and Walmart have argued that the strict and tightly controlled ecommerce rules in India limited their ability to expand in the country.
In a statement, Amazon said that this recent change and rule relaxation by India would help manufacturers in smaller towns reach overseas buyers and support the company’s goal of getting $80 billion in cumulative exports from India by 2030.
Indian Retailers Call for Strict Oversight
While companies like Amazon and Walmart are celebrating the decision for its ability to help them expand and grow in India, smaller retailers in India are having a very different reaction. Industry groups that back and support the many small retailers in India have opposed any easing of these rules.
For example, an organization that represents millions of physical retailers, the Confederation of All India Traders (CAIT), argued that rule changes like this could be abused by these foreign firms and give them more control over supply chains.
This fear didn’t materialize from nowhere, either, as in 2024, an antitrust investigation in India found that both Amazon and Flipkart breached competition laws as they gave preferential treatment to select sellers, though both companies have denied these allegations.
Speaking about what could be done to keep these large companies honest after these rule changes, Praveen Khandelwal, the Secretary General of CAIT, said that “A robust monitoring mechanism must be put in place to ensure there is no misuse of this provision. Given the past track record of several large tech companies … strict oversight is essential,”.
Our Take
Preparing for Greater Competition
While the decision by India gives large companies cheaper sourcing options, for many smaller sellers that aren’t sourcing low-cost goods from India to sell to their customers globally, the move likely means greater competition from rivals.
If the big names in the industry, such as Amazon and/or Walmart, can secure goods at lower rates from Indian manufacturers, they may be able to sell them cheaper to the end customer, which may make it hard for independent and/or small sellers to compete on pricing.
To prepare, brands need to think about how they’re going to handle this potential influx of cheaper Indian goods in Western markets. Generally, this is done either through adjusting pricing or highlighting the quality and value your items have compared to the cheaper goods the large platforms are getting from India.
