India could allow global online retailers such as Amazon.com to sell their own products as early as next month, removing restrictions that have held back competition in one of the world's biggest, and most price-sensitive, retail markets.
The decision, which is likely to be announced in or alongside the budget, is one of the first tangible signs of economic reform by the business-friendly government of Prime Minister Narendra Modi, who was sworn in 10 days ago.
The move could allow the government to circumvent political opposition to opening up India's $500 billion retail sector to global retail giants such as Wal-Mart Stores.
Four people privy to discussions within the government told Reuters that officials believed a more robust online retail sector would spur manufacturing and consumption, helping revive an economy that has grown at below 5 percent for two years, the longest period of sub-par expansion since the late 1980s.
"Most stakeholders support FDI (foreign direct investment)," said a senior government official, referring to e-commerce. "We have pitched for opening it up completely."
Industry surveys say e-commerce could contribute up to 4 percent to India's economy by 2020 from under one percent now.
The official, like others who spoke to Reuters on the move, declined to be named because the matter was confidential. When asked about the decision, a spokesman for India's commerce and industry ministry declined to comment.
Although New Delhi has been discussing opening up the sector since last year, the sources said a decision was imminent. "The way the government is initiating discussion, it is very clear that they are extremely serious about it," said an executive with a global online retailer who was invited to a meeting two weeks ago between the government and foreign and domestic companies. "They understand this will help small traders to grow their business, expand and reach out to a larger market," he said.
While Modi's Bharatiya Janata Party (BJP) has been a vocal critic of the country's multi-brand retail policy, it has remained quiet on the proposal to open up the e-commerce sector. On the campaign trail, Modi had asked small traders not to feel intimated by big online retail chains. "We should not worry about these things. Our children have taken IT to the world. We'll have to embrace it," he told a gathering of small traders in February.
Modi will eventually decide investment guidelines as well as the foreign ownership cap, but the sources said the rules will be clearer and better than those for foreign investment in the supermarket sector.
For example, implementation of the policy will not be left at the discretion of individual states, they said. But local sourcing and investment in the supply chain will be required.
An Amazon spokesperson said the company did not comment on future events but believed opening up the sector would be good for consumers and Indian businesses and spur infrastructure development.
"It would allow us to partner with local manufacturers to source products not carried by other sellers on the marketplace, giving Indian consumers unique and wider choices at lower prices."
Deepa Thomas, spokeswoman for eBay in India, said it was excited about the opportunity and believed in the need for a carefully calibrated approach to opening up the sector.
The industry ministry that drafts FDI rules recently met officials from companies including Amazon, Google, eBay, Wal-Mart and Indian e-tailer Flipkart to finalize the investment guidelines, the people said.