India proposes e-commerce rule change to boost Amazon exports amid retailer backlash

The Indian government has reportedly drafted a significant proposal aimed at easing foreign investment regulations for e-commerce entities such as Amazon. This new framework would permit these companies to directly purchase products from Indian sellers and subsequently export them to overseas customers. This move marks a potential shift in India's long-standing e-commerce policy.

Currently, India maintains a strict prohibition against foreign e-commerce companies selling goods directly to consumers, whether domestically or internationally. Their operations are limited to functioning as marketplace platforms, connecting buyers and sellers for a fee. This restrictive policy has been a consistent point of contention between New Delhi and Washington for several years, with Amazon notably lobbying the Indian government to relax these rules, particularly for export activities.

The proposed changes arrive amidst broader efforts by both India and the United States to overcome persistent differences and advance a long-delayed trade deal. This diplomatic context underscores the potential impact of these policy adjustments on bilateral relations and economic cooperation.

However, the proposals have drawn criticism from powerful groups representing millions of small Indian brick-and-mortar retailers. These groups have strongly urged the government to dismiss Amazon's request, arguing that the financial might of U.S. companies poses a significant threat to their businesses and competitive landscape.

According to a 10-page confidential proposal from The Directorate General of Foreign Trade (DGFT), seen by Reuters, less than 10% of small Indian businesses engaged in online domestic sales currently participate in global e-commerce exports. This limited participation is attributed to "complex documentation (and) compliance requirements." To address this, the DGFT's proposal envisions a "third-party export facilitation model," where a dedicated export entity, linked to e-commerce platforms, would be responsible for managing compliance procedures.

While specific details from the Directorate and Amazon remain undisclosed, as neither responded to Reuters' inquiries, the proposal is understood to require final approval from India's cabinet. Amazon has previously indicated that such a move would greatly benefit Indian exporters, aligning with its own ambitious target of increasing cumulative exports from India to $80 billion by 2030, up from $13 billion since 2015.

The Confederation of All India Traders (CAIT), a major body representing millions of brick-and-mortar retailers, voiced strong opposition to the proposal. CAIT expressed concerns that the relaxed rules could be exploited by foreign companies, potentially giving them excessive control over supply chains and creating avenues for abuse. B.C. Bhartia, the confederation's national president, warned of a "slippery slope," making it "nearly impossible to monitor whether goods are genuinely meant for exports or being diverted into the domestic market."

In response to these concerns, the DGFT's draft explicitly states that the relaxed rules would strictly apply only to exports. Furthermore, any breaches of this policy would be met with severe penalties, including potential criminal action. The Directorate has also suggested implementing the model on a pilot basis initially, with a review period before scaling it up further.

This policy discussion also unfolds against a backdrop of past regulatory scrutiny. Last year, the Indian antitrust watchdog concluded an investigation, finding that Amazon had breached competition laws through practices like deep discounting and preferential treatment of select sellers – allegations that Amazon has denied. These ongoing debates highlight the complex interplay between foreign investment, domestic business interests, and regulatory oversight in India's rapidly evolving e-commerce sector.