Shanker Singham, Chairman of the Competere Foundation, warns that India's recent decision to allow FDI only for export-oriented e-commerce inventory models could severely distort market competition.

  • The Indian government eased FDI rules in July 2025 to allow investment in inventory-based e-commerce models, strictly for export purposes.
  • Experts argue that selective liberalization creates an uneven playing field for different business models.
  • Anti-competitive distortions could lead to a massive $173.6 billion loss to India's GDP over five years.

India's strategic shift in Foreign Direct Investment (FDI) regulations within the e-commerce sector has drawn sharp criticism from policy experts. Shanker Singham, President and Chairman of the Competere Foundation for Trade and Competition Policy, has stated that the partial opening of FDI rules could be "almost worse" for market competition than maintaining a complete ban.

In July 2025, the Indian government relaxed its stance, permitting FDI in e-commerce companies that maintain their own inventory, provided that such inventory is intended solely for export. Previously, the regulations strictly prohibited foreign investment in any e-commerce entity following an inventory-based model.

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The Perils of Selective Liberalization

The core of the concern lies in the government's decision to pick and choose which business models are allowed to benefit from foreign capital. Mr. Singham argues that by allowing FDI only for the export-oriented inventory model, the state is effectively determining which firms succeed and which are left behind due to their operational structures.

Allowing FDI in the inventory model only for exports is almost worse than having a blanket restriction because it artificially selects winning models.

Economic Implications and Market Distortions

The economic scale of this issue is staggering. A report by the Centre for Trade and Investment Law (CTIL) and the Competere Foundation highlights that existing policy measures causing Anti-Competitive Market Distortions (ACMDs) could result in a combined economic loss of approximately $173.6 billion over five years—roughly 4.2% of India's GDP.

Of this massive figure, foreign investment restrictions are estimated to contribute $127.2 billion in losses. The remaining amount is attributed to "competition-policy drift," where disproportionately high regulatory requirements stifle investor confidence.

Why This Matters

BozokMedia analysis shows that these distortions do more than just hurt numbers; they impact the very fabric of the economy. Such policies reduce overall productivity, limit the influx of much-needed capital, slow down the diffusion of new technologies, and ultimately weaken the contestability of the Indian market.

While the government's intent to bolster domestic manufacturing for export is understandable, the cost to competition remains a critical variable. Mr. Singham suggests that while national security is a legitimate regulatory objective, it must be balanced to ensure that the methods used to achieve it are the "least anti-competitive" possible.

Did You Know?: India has implemented strict FDI scrutiny for countries sharing a land border with India, a move primarily driven by national security concerns.

Frequently Asked Questions

1. What is the new FDI rule for e-commerce in India?
Foreign investment is now permitted in inventory-based e-commerce models, but only if the goods are intended for export.

2. How much could India lose due to anti-competitive policies?
Estimates suggest a potential loss of $173.6 billion over a five-year period.