By Shivanand Pandit
The All India Consumer Products Distributors Federation (AICPDF) has asked the Ministry of Commerce and Industry to examine whether foreign-funded e-commerce companies such as Amazon and Flipkart are operating their quick commerce businesses in accordance with India’s Foreign Direct Investment (FDI) regulations. The federation has raised concerns over whether these companies are using warehouses and dark stores in a manner that effectively allows them to operate an inventory-led business, which is not permitted under the existing FDI policy for foreign-funded marketplace platforms. AICPDF has also requested the government to clarify whether any amendments have been made to the current FDI rules or whether any special approvals have been granted that allow foreign-owned e-commerce companies to adopt such business models.
According to the federation, India’s Consolidated FDI Policy and the Department for Promotion of Industry and Internal Trade (DPIIT) Press Note 2 of 2018 permit up to 100% foreign investment only under the marketplace model of e-commerce. Under this framework, an e-commerce platform is expected to act only as a facilitator that connects buyers and independent sellers. It is not allowed to own inventory, directly influence product prices, or give preferential treatment to selected sellers.
AICPDF argues that the quick commerce model appears to blur the distinction between a marketplace and an inventory-based business. It pointed out that quick commerce companies rely on a dense network of warehouses, commonly known as dark stores, located within a few kilometres of customers to enable rapid deliveries. According to the federation, these facilities seem to be centrally managed, with the platforms overseeing inventory planning, stocking, pricing, promotional campaigns, discount strategies, logistics, and customer service. Such extensive operational control, it says, resembles an inventory-led model rather than a neutral marketplace.
The federation has also expressed concern over deep discounting, aggressive promotional offers, and algorithm-based pricing strategies adopted by some digital platforms. It believes that these practices are often supported by large pools of foreign capital, giving online platforms a competitive advantage that traditional retailers and distributors cannot easily match. As a result, small neighbourhood stores may struggle to compete, leading to reduced competition in the long run.
AICPDF further warned that the rapid expansion of quick commerce could significantly affect India’s traditional retail ecosystem, which supports nearly 1.4 crore retail shops and around 4.5 lakh distributors. It stated that increasing competition from digital commerce has already led to the closure of many small retailers in recent years. If foreign-funded marketplace companies are permitted to expand using business models that effectively control inventory, the federation believes the impact on employment, entrepreneurship, and small businesses could become even more severe.
To address these concerns, AICPDF has proposed the formation of a high-level committee comprising representatives from the DPIIT, the Ministry of Commerce and Industry, the Ministry of Finance, the Competition Commission of India (CCI), the Central Consumer Protection Authority (CCPA), trade associations, distributors, retailers, and consumer groups. The federation wants the committee to evaluate the long-term impact of quick commerce on market competition, employment, investment, consumer welfare, and the retail sector, while recommending policy measures that promote fair competition and protect the interests of all stakeholders.
Responding to these concerns, an executive from a leading e-commerce company highlighted policy changes introduced in 2022. The executive explained that the government allows 100% FDI under the automatic route for food processing and permits 100% FDI through the government approval route for retail trading, including e-commerce, of food products manufactured or produced in India. For non-food products, however, the executive clarified that although warehouses are used to store and deliver goods, ownership of the inventory continues to remain with independent sellers rather than the e-commerce platforms.
Retail Requires Regulatory Resolution
The concerns raised by AICPDF have also drawn attention to a broader issue—the need to simplify India’s retail and e-commerce regulations. Over the years, the legal framework governing retail has become increasingly complex, making compliance difficult for businesses and creating uncertainty for investors. As technology continues to transform the retail industry, the regulatory framework must evolve to become clearer, more transparent, and easier to implement. A simple and predictable policy environment would improve regulatory compliance, reduce disputes, and make India a more attractive destination for domestic and foreign investment. It would also improve the ease of doing business by reducing the need for companies to seek approvals and clarifications from multiple government departments.
India’s e-commerce market is currently estimated at around $90-100 billion and is expected to grow to nearly $250 billion by 2030. Given this rapid expansion, the country requires a comprehensive e-commerce policy that serves as a single, unified framework. At present, foreign-owned e-commerce companies often have to interact with several ministries and regulatory bodies to meet different compliance requirements. A consolidated policy would reduce administrative complexity, improve regulatory certainty, and encourage investment.
The overall retail sector is equally significant, with its value exceeding $1 trillion and expected to cross $2 trillion by 2030. However, retail reforms have remained politically sensitive because governments have consistently sought to protect millions of kirana stores that form the backbone of India’s retail economy. This has resulted in multiple categories of retail operations, each governed by separate rules, making India’s regulatory framework far more complicated than those in many other countries.
For example, although India announced a policy in 2012 allowing up to 51% FDI in multi-brand retail, it has not been implemented in practice due to concerns that global supermarket chains could adversely affect small domestic retailers. In contrast, single-brand retail permits up to 100% foreign investment, enabling companies such as Apple, Ikea, and H&M to establish wholly owned operations in India. Some international retailers have also entered the market through franchise partnerships or wholesale cash-and-carry businesses after their multi-brand retail plans did not materialise.
The rise of e-commerce and quick commerce has further complicated the policy landscape. Different FDI rules currently apply to marketplace platforms, inventory-led businesses, food products manufactured in India, and international food brands. While marketplace platforms are prohibited from owning inventory, they are allowed to create warehouse and logistics infrastructure for sellers. This distinction has often led to differing interpretations of the rules, resulting in regulatory uncertainty and repeated disputes over compliance.
Going forward, India needs a modern and balanced retail policy that encourages innovation and investment while ensuring that businesses operate within the law. The government should undertake a comprehensive review of the existing regulatory framework with the participation of the DPIIT, the Ministry of Commerce and Industry, the Ministry of Finance, competition authorities, consumer protection agencies, and industry representatives. Such a review should assess the long-term impact of quick commerce on competition, employment, investment, consumers, and traditional retail. At the same time, it should create a transparent regulatory framework that provides equal opportunities for all businesses—whether online or offline. Before permitting further expansion of quick commerce by companies such as Amazon and Flipkart, the government should ensure that their operating models fully comply with India’s FDI regulations. A clear and consistent policy will help maintain fair competition, attract investment, encourage innovation, and safeguard the interests of millions of retailers, distributors, and consumers across the country.
