Trade talks: US demands level playing field in e-commerce, India resists

The discussions, held during trade talks between the two countries in Washington till 8 March, did not succeed in resolving the differences, the people cited above said on condition of anonymity. However, both sides have agreed to continue the discussion.

“The issue of providing more access and a level playing field to US-based e-commerce firms came into discussion during the recent talks for a bilateral trade agreement in Washington,” said the first person.

However, the demand for a change in policy framework to allow US-based firms to operate on the inventory model (where platforms own and sell products directly) has not yet been “accepted” by the Indian negotiators, and talks are ongoing to find a middle path to adjust the policy framework, this person said. Currently, foreign e-commerce firms are permitted to operate on the marketplace model in India, where they just connect buyers and sellers.

India, on its part, maintained that its policies aim to ensure fair competition and protect small businesses, while also safeguarding consumer interests, the first person added.

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“The plans in progress include limiting full access to the inventory-based e-commerce model, with India potentially allowing these companies to participate under certain conditions while maintaining regulatory control,” said the second person.

The other issues that were reportedly raised by US representatives during the discussions include data localisation requirements, restrictions on deep discounts, and compliance with India’s foreign direct investment (FDI) norms for e-commerce, this person said.

In response to an emailed query, the US Embassy’s spokesperson said, “As Commerce Secretary Lutnick said, the United States seeks a grand trade deal between India and the United States, and the United States seeks to bring down the tariff levels that India has. Secretary Lutnick noted that no sector should be off the table.”

Queries emailed to spokespersons of Prime Minister’s Office, ministries of external affairs and commerce, USTR, US department of commerce, Amazon, Walmart, Flipkart and Reliance Retail remained unanswered till press time.

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To be sure, the e-commerce sector in India is regulated by multiple laws, including the FDI policy, the Consumer Protection Act of 2019, the Information Technology Act of 2000, and the Competition Act of 2002. Oversight is shared among the ministries of consumer affairs, electronics and information technology (MeitY), and commerce, each managing aspects such as consumer protection, data governance, and trade practices.

The ‘model’ battle

The inventory model of e-commerce, where no FDI is allowed, is permitted to domestic players only. In this model, the e-commerce entity owns and stores inventory of sellers in a warehouse, and sells products directly to consumers. Such a model, which allows the platform to be in control of the branding and quality of the products, is being followed by companies such as Reliance and Tata, among others.

US firms, on the other hand, are permitted to operate under the marketplace model, where 100% FDI is allowed under the automatic route. In this model, the platforms merely act as intermediaries to connect buyers and sellers, but they cannot own or sell inventory directly. The restriction on FDI in this model prevents large foreign firms from directly competing with small retailers by selling their own stocked goods at potentially lower prices.

This distinction has long been a point of contention, with global e-commerce giants advocating for policy relaxation, while domestic traders argue that allowing FDI in inventory-based models would hurt small businesses and local retailers.

However, Vinod Kumar, president of the India SME Forum, suggested allowing the inventory model in e-commerce exports, which he believes could be a game changer for MSMEs.

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“This would enable them (MSMEs) to enter export markets without the compliance and regulatory hurdles associated with e-commerce exports today, providing a significant boost toward achieving the government’s target of $200 billion in e-commerce exports from India by 2030,” said Kumar.

At the same time, Kumar suggested that safeguards can be put in place to ensure that Indian sellers are not disadvantaged in the process.

New e-commerce policy

Mint had earlier reported on 13 February that India’s proposed comprehensive e-commerce policy, which has drawn significant interest from global players like Amazon and Walmart, may be put on hold as countries reassess their priorities following a major regime change in the US.

The proposed policy seeks to tighten regulations on data storage, prevent deep discounting by platforms, increase regulatory compliance, impose hefty penalties for norm violations, and ensure greater transparency in online marketplaces.

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With Washington taking a more protectionist stance under Donald Trump’s presidency, India is adjusting its strategy by focusing on broader trade negotiations and strategic partnerships.

The policy, initially expected to be announced in 2023, has faced repeated delays, with the final round of stakeholder consultations taking place in August 2023.

Mint reported on 1 January 2024 that the policy was being scrutinized by the Prime Minister’s Office (PMO) to understand its potential impact on domestic retailers and small players.

Mint reported on 22 November 2023 that the proposed e-commerce policy might not mandate online firms to register on the Open Network for Digital Commerce (ONDC). Instead, the policy proposed voluntary registration, marking a shift from the government’s earlier stance.

India’s e-commerce market

According to an Invest India report, the country’s e-commerce market is set to grow to $325 billion and the digital economy to $800 billion by 2030.

India, with 881 million internet users, is the world’s second-largest online market. Its growing digital economy could make it the third-largest online retail market by 2030, as per the Invest India report.

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According to a report by Pahle India Foundation (PIF), a Delhi-based policy research institute, e-commerce has been a key driver of employment generation in India. On average, online vendors employ 54% more people and almost twice the number of female employees compared with offline vendors.

Online vendors have generated 15.8 million jobs in India, including 3.5 million for women, with about 1.76 million retail enterprises participating in e-commerce activity, said the August 2024 report.