India’s $60 billion e-commerce market, with over 270 million users, has maintained its double-digit growth, defying many odds.

Yet, the sector lacks a much-needed policy clarity for companies, small businesses, and consumers to gain from, experts believe, as the many policy flip-flops have been keeping the sector from achieving its true potential.

A Case For Competitive Plurality

One of the defining policies of e-commerce was Press Note 3 of 2016, where e-commerce companies with foreign investment can only operate in the marketplace model and not the inventory-based model.

In a marketplace model, an e-commerce platform can connect consumers to third-party sellers, but in an inventory model, the platform can buy, store and sell products by itself. While the government allows 100% FDI in the sector, those companies with foreign investments cannot operate in both letter and spirit.

“As the market matures, there is an opportunity to change Press Note 3, to allow foreign investment into the inventory-based market. It's blatantly unfair to treat foreign companies differently from domestic companies. Likewise, Indian companies in international markets want to be treated as domestic markets as well. It’s an issue of reciprocity as Indian e-commerce seeks to go into international markets,” said Jay Gullish, senior director of digital economy, media, and entertainment of the US-India Business Council (USIBC).

The Indian e-commerce sector has attracted global majors like Amazon and Walmart, which invested in Flipkart and Myntra. In addition, Nykaa, Meesho, Udaan and Zepto have foreign investments in the form of private equity or venture capital. Yet, the country, which has over 800 million Internet users, has yet to achieve competitive plurality in the sector in both letter and spirit.

“When you look at the structural framework, the way it exists today in the market, we do allow for a fair bit of scale, but not as much control. Foreign investors and players can only control so much of what impacts them,” said Ashish Fafadia, partner at Blume Ventures.

Apart from attracting a fair bit of FDI, the Indian e-commerce sector has been able to create infrastructure to facilitate e-commerce, like UPI and other payment gateways, with both digital and offline infrastructure. From here on, growth will be linked to how policies are shaped around the sector.

“As a way forward, there is going to be a certain premium that the markets or the investors will factor in or discount, depending on how the market regulations are shaped. If we see flip-flops on a policy basis, we will end up getting discounted; and if we see consistency, we end up getting a premium,” adds Fafadia.

Investors And Small Retailers

Most of India's e-commerce policies are shaped to protect MSMEs like small retailers and kiranas. MSMEs are a key cog in the economic wheel as they make up for a third of India’s GDP and almost half of India’s exports.

The MSME sector, which is fragmented in India, may not be able to gain only from volume growth, but needs credit, logistics and technological support as well.

Experts said that overprotection of a sector might lead to a lack of a level playing field. A bigger worry is that the constant altering of policies around the sector also hurts investments. Investors expect an assurance that policies are going to be ‘roughly the same’ at the time of entry as well as exit of their investments.

“I'm not going to try and say that we need to just go ahead and en masse remove all the restrictions. There is a certain view that the government has held that we need to protect the retailer on the street, and the SME needs to be afforded a little bit of protection. But the whole plurality of competitiveness as a market needs to be more consistently driven as a message of reassurance; that what you see today is going to be the landscape for the next 10 years,” said Fafadia.

Flip-Flops Undermine Investments

Gullish believes that the e-commerce market is currently being regulated as if it were an immature new technology, while it has been around for a long time. He suggests that the time has come for a top-to-bottom review of what has and hasn’t worked, with a holistic approach.

The e-commerce universe covers a large section of laws and regulations, including the Information Technology Act, Consumer Protection Rules and the Competition Act. Each of these laws and regulations impacts the way goods travel, their costs and, of course, availability.

Being a part of the Internet economy, it’s also guided by the Digital Personal Data Protection Act, 2023 (DPDP Act). “It took almost 10 years to get to a really solid place. In that decade, there was a lot of back and forth, a lot of consternation. It actually undermined a lot of excitement and potential investments in India,” Gulish said.

Countries like the US and Singapore take a different approach to innovation, where they let it thrive, grow and find its place before regulatory steps. In India, however, no such leeway is afforded to companies. Apart from umbrella regulations, the e-commerce sector is also impacted by sector-level regulations, which increase the compliance burden for e-commerce players.

India’s Cultural Wealth

A roadblock-free path to e-commerce growth can also aid the growth of the sector, which still holds a lot of potential. While India has over over 800 million Internet users, only a fourth of them shop online – indicating that a runway to growth exists. Moreover, competitive reciprocity can also aid the country’s micro, small and medium-sized enterprises (MSMEs).

Indian products and goods are globally significant from a cultural point of view and can find their feet if allowed to soar. Thanks to a growing Indian diaspora, there is an acute demand for various products abroad.

“There's so much culture, so much creativity, so many interesting products and a diaspora that desires it. There's not a country or a major city around the world that doesn't have an Indian shop that is importing goods and services. And there's always something missing from that shop,” said Gullish.

A large number of Indian products can be sold abroad apart from food, be it clothing and fashion, cutlery, or so, which is India’s e-commerce wealth that’s often overlooked and missed, as per Gullish. Changing laws on both sides are impacting the porous movement of goods via e-commerce platforms.

De Minimis Exemption Effect

A few MSME exporters have also been impacted by the changed de minimis policy by the US. ‘De minimis’ refers to the minimum value of goods that can be imported without incurring any duties.

In 2025, the US removed this exemption, which was given to small retailers who sold in the US via large e-commerce platforms. Now, all packages, regardless of size, will have to pay the full customs duty, making it a difficult proposition for these sellers.

Moreover, this rule has also impacted the way international platforms think about the Indian market as it impacts their ability to create vendor networks. International platforms, be it from the US, Europe, or Asia, have already been finding it difficult to develop such networks in India due to return policies, payments and more such issues.

“I think it changed the way a lot of the mid-tier and smaller platforms think about entering India. It's not just American e-commerce; there are a lot of sizable and innovative e-commerce platforms in Europe and elsewhere in Asia that also haven't really stepped into the Indian market for various and different reasons. But that vendor network is really critical. And that's where I think India's actually competitive edge is,” said Gullish.

He added that India must negotiate a de minimis ruling with a waiver from both sides.

As India’s e-commerce market enters its next phase of growth, policy stability may matter as much as capital or technology. Clear, predictable rules could help attract investment, support MSMEs, and unlock the sector’s full potential at home and abroad.

This series is supported by Flipkart.