(MENAFN- Live Mint)

US trade negotiators want India to allow online marketplaces such as Amazon India and Walmart-owned Flipkart to stock and sell their own goods, seeking a policy change that could reshape India's online retailing.

India bars foreign-owned online retailers from holding inventory, prompting them to source goods from a large network of vendors. In contrast, locally-funded online retailers such as Ajio, BigBasket and Nykaa hold and sell their own goods. The change, if approved, could heighten competition between the two categories.

The US negotiators have cited the need for a“level playing field" between the two categories, the people cited above said on the condition of anonymity.

“Both sides are exploring ways to address the issue of greater market access for e-commerce companies, mainly US-based firms Amazon and Walmart-owned Flipkart," said one of the two people mentioned earlier.

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The US has imposed a 50% tariff on India-the highest so far-comprising a 25% reciprocal tariff and a 25% penalty for purchasing Russian oil. The push for inventory-based operations comes alongside US calls for regulatory transparency in digital trade, cloud services, and logistics. The negotiations are on hold due to the US government shutdown but are expected to resume once Washington reopens, these people said.

'Mutually beneficial'

“The Indian side is discussing the issue with its US counterparts to resolve it in a mutually beneficial manner. They are assessing its implications on the policy framework, and any decision will be taken keeping the country's best interests in mind," the second person said.

The move comes even as the Centre evaluates its delayed comprehensive e-commerce policy, designed to regulate data governance, competition, and consumer protection while creating a level playing field for domestic and foreign players.

A spokesperson for the US Embassy in New Delhi in an emailed response said,“Due to the lapse in appropriations in the US government, we are unable to respond to routine press inquiries."

Queries emailed to the spokesperson of India's commerce and industry ministry remained unanswered.

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Trade associations such as the Confederation of All India Traders (CAIT) have previously complained about Amazon and Flipkart allegedly violating the no-inventory rule.

“The US demand to allow an inventory model in India's e-commerce sector raises serious concerns," said a top official of CAIT.“Such a framework could indirectly allow foreign e-commerce companies to participate in retail trading, which goes against the spirit of India's FDI policy. This may also affect small traders and disturb the balance of competition in the domestic market," the official said, requesting anonymity.

Behind the caution

India barred foreign-funded e-commerce firms from operating an inventory-based retail model through Press Note 3, issued on 29 March, 2016. The policy allows 100% FDI under the automatic route only in the marketplace model of e-commerce, while prohibiting foreign investment in inventory-based operations to prevent price manipulation and protect fair competition for small retailers.

India's comprehensive e-commerce policy, designed to tighten rules on data governance, competition, and consumer protection, has faced delays and resistance from global players due to FDI restrictions, data localization requirements, and compliance burden.

According to the people cited earlier, the policy may be temporarily put on the backburner as India reassesses its approach in light of global trade uncertainties and evolving geopolitical conditions.

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Talks on the India-US Bilateral Trade Agreement (BTA ) resumed on 16 September after a month-long pause over India's red lines on agriculture, dairy, and genetically modified crops. Both sides have held five rounds of face-to-face talks, while the sixth round, initially scheduled for 25 August, stalled over US demands that India open these critical sectors to American products. The talks are targeted to be concluded in November.

India's exports to the US rose 18% to $40.35 billion in April-August FY26, up from $34.21 billion a year earlier, while imports grew 8.5%, from $19.91 billion to $21.61 billion. This brought total bilateral trade to $61.96 billion during the period in FY26, up 14.5% from $54.12 billion in FY25.

Big market

India is the world's second-largest online market, with 881 million internet users, and its digital economy could reach $800 billion by 2030, according to an Invest India report. The e-commerce market itself is projected to grow to $325 billion, making it a key battleground for global platforms.

For comparison, the global e-commerce market was valued at $26.8 trillion in 2024 and is expected to reach $214.5 trillion by 2033, as per Mordor Intelligence.

Domestic impact and implementation concerns

India is considering a pilot project allowing foreign-funded e-commerce companies to buy goods from local vendors, hold inventory, and sell directly to overseas buyers, Mint reported earlier. The plan, expected to be launched first with the UK-India's new free trade agreement partner, would let foreign-funded platforms export products while bypassing the current marketplace-only restriction.

Industry executives warn that mixing export and domestic inventory could create compliance challenges.

“The concern is that to meet delivery timelines, a product could accidentally be shipped through third-party or export-designated inventory instead of the domestic one, or vice versa. Such instances could invite scrutiny from enforcement agencies and be seen as potential policy violations," a senior executive at a major foreign e-commerce company said, requesting anonymity.

At the same time, experts note the operational rationale for the US push.

Vivek Singhal, co-founder and CEO of Bidso, a B2B manufacturer of outdoor toys, said,“An increased emphasis on efficiency and working capital optimization is reflected in the US e-commerce landscape's shift towards a 'ask for inventory' or on-demand procurement model; these trends are also becoming more and more pertinent to India's domestic market."

“Inventory-light models can enhance cash flow cycles and cut warehousing expenses by up to 25-30%, since India's e-commerce is predicted to reach $350 billion by 2030. Adopting a data-driven inventory strategy can help MSMEs and direct-to-consumer brands increase their agility in a market that is becoming more and more competitive by enabling speedier delivery and reducing dead stock," Singhal added.

Export hubs

Under the government's revised framework, E-Commerce Export Hubs (ECEHs) are being operationalized with simplified return logistics, easier inter-state movement, and faster GST refunds. An inventory model for e-commerce exports will allow third-party facilitation entities to manage compliance and logistics on behalf of exporters-particularly micro, small, and medium enterprises (MSMEs)-enabling them to focus on quality and branding.

Indian small and medium exporters remain wary.

Vinod Kumar, president of the India SME Forum, said that the move to allow inventory-based exports through e-commerce platforms could open new channels for small and medium exporters, but clarity in implementation is crucial.

“The idea is progressive and can help Indian MSMEs access global markets more easily. However, without clear separation between export and domestic inventory, companies could face unnecessary compliance risks. The rules need to be transparent and practical to avoid future disputes," Kumar said.

Key Takeaways

• US urges India to allow e-commerce firms to hold, sell their own inventory.
• Current Indian law bans foreign-owned online retailers from maintaining inventory.
• US seeks "level playing field" with local retailers like Ajio, BigBasket, Nykaa.
• Traders' association warns inventory change aids foreign retail, hurting small sellers.
• India's e-commerce policy delay suggests reassessment amid global trade uncertainties.

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