India is considering new e-commerce rules that may restrict Amazon and Walmart

  • India outlined a new draft policy to govern its growing e-commerce sector that would protect domestic firms and may further restrict the way foreign companies operate within the country.
  • The draft, published on Saturday, called for data to be stored locally and for the setting up of more data centers and sever farms within the country.
  • New Delhi appears to be trying to follow China's playbook in successfully nurturing the likes of Baidu, Alibaba and Tencent to become global tech giants.
An employee of Amazon India retrieves products from an assorted storage area to fulfil orders placed by customers prior to packaging at Amazon's newly launched fulfilment centre on the outskirts of Bangalore on September 18, 2018.
Manjunath Kiran | AFP | Getty Images
An employee of Amazon India retrieves products from an assorted storage area to fulfil orders placed by customers prior to packaging at Amazon's newly launched fulfilment centre on the outskirts of Bangalore on September 18, 2018.

India has outlined a new draft policy to govern its growing e-commerce sector that would protect domestic firms and may further restrict the way foreign companies operate within the country.

New Delhi appears to be trying to follow China's playbook in successfully nurturing the likes of Baidu, Alibaba and Tencent to become global tech giants. Beijing has many restrictions on how foreign tech companies can operate in the world's second-largest economy.

The draft, published Saturday, calls for data to be stored locally and for setting up more data centers and server farms within the country. It would not only give a boost to computing in India but would lead to local job creation, policymakers argued in the document. Foreign companies would have three years to prepare or build the infrastructure they need to comply with the regulation, which could add to their cost of operations.

"India's data should be used for the country's development," the draft said. "Indian citizens and companies should get the economic benefits from the monetization of data."

Foreign e-commerce firms would also have to become registered business entities in India to continue selling in the country, according to the draft rules. The 41-page document also addressed issues such as the sale of counterfeit goods and the protection of consumers. Companies have been invited to provide comments on the draft policy by Mar. 9.

While e-commerce in India is still at its nascent stage, compared to the overall retail sector, the market is predicted to reach $200 billion by 2026 from under $39 billion in 2017, mostly due to rising incomes and a surge in Internet users, according to the government's India Brand Equity Foundation.

The untapped potential of India's e-commerce market has led to a roughly $5 billion investment from Amazon and a $16 billion bet from Walmart into local player Flipkart. But in December, India put new restrictions on foreign direct investments into the e-commerce sector, forcing Amazon and Walmart-owned Flipkart to restructure their business operations to comply with the law.

"We are currently studying the draft policy and we will provide our inputs during the public review period," an Amazon India spokesperson told CNBC on Monday.

Flipkart did not immediately respond to an emailed request for comments.

As millions of Indians access the internet for the first time, most of them through smartphones, the country has become a target for global tech companies to acquire new users for their services and to gather demographic data on online behavior and spending habits.

Policymakers said in the draft that without having access to that massive trove of data generated within India, local businesses would not be able to create value-added digital products. Domestic technology companies, they said, would be "merely processing outsourced data work."

Only a handful of companies today dominate the digital economy by exploiting first mover's advantage in a data-driven society, they said.

"By not imposing restrictions on cross-border data flow, India would itself be shutting the doors for creation of high-value digital products in the country," the draft said.

India's richest man Mukesh Ambani, who is also the chairman and managing director of local conglomerate Reliance Industries, has been a vocal proponent of storing data locally, as opposed to placing them in the hands of foreigners.

The draft outlined plans for a legal and technological framework that would provide the basis for restricting cross-border flow of data generated within the country. It would allow Indian authorities to request access to that data even if it is stored abroad. New Delhi can also potentially deny another government access to that same information.

Ahead of this year's crucial parliamentary elections, India is stepping up its restrictions on the way global tech titans, including Facebook, are operating in the country.

Last month, the secretary of India's Telecommunications Department told local start-ups in a closed-door meeting the government will introduce a so-called "national champion" policy soon to promote the success of domestic companies, the Wall Street Journal reported.