India's Digital Crossroads: Forging a unified path for e-commerce and retail

23 June, Mumbai 2025

India's commerce and industry minister, Piyush Goyal, recently put the spotlight on our growing digital economy, announcing ongoing revisions to the national e-commerce policy and a parallel review of the retail trade policy. This synchronized approach acknowledges the intricate and increasingly inseparable relationship between online and traditional marketplaces, aiming to forge a cohesive framework for a future-ready retail ecosystem.

The urgency for policy recalibration stems from the e-commerce sector's explosive and ever-evolving nature. "Since the e-commerce sector is an evolving and fast-changing subject, we did come out with certain ideas, but I think we will have to revise the policy to make it more contemporary, and it is under discussion," Goyal stated, emphasizing the need for adaptable regulations. The Department for Promotion of Industry and Internal Trade (DPIIT) is actively seeking input from stakeholders, including the National Traders' Welfare Board, with objectives centered on streamlining trade, enhancing ease of doing business, facilitating access to affordable credit, and accelerating modernization and digitization across the board.

Navigating the digital conundrum

While the digital wave has unlocked unprecedented convenience and market access, it has also resulted in a complex web of concerns demanding robust policy interventions.

Regulatory Labyrinth and FDI Uncertainty: One major challenge has been the frequent revisions and perceived ambiguities in regulatory frameworks, especially concerning data localization requirements and Foreign Direct Investment (FDI) regulations. Such uncertainties have, at times, deterred foreign investment. For global e-commerce players, mandates for storing consumer data within India, while ensuring data sovereignty, pose considerable logistical challenges and added costs for establishing local data centers. The absence of a unified data governance framework further complicates cross-border data sharing, potentially stifling innovation, particularly among startups. A NASSCOM study, had projected the e-commerce sector to create up to 1.5 million jobs by 2026; policy delays, if prolonged, could impede this growth.

Fair competition and the dominance debate: The rapid growth of a few large e-commerce players has sparked intense debates around fair competition. Allegations of deep discounting, exclusive tie-ups, and preferential treatment of certain sellers have raised concerns about creating an uneven playing field. Traditional retailers and Micro, Small, and Medium Enterprises (MSMEs) often find themselves at a disadvantage, struggling to compete with the vast resources and pricing power of online giants. The existing Competition Act, designed for traditional markets, has shown limitations in addressing the fast-paced dynamics of digital markets, leading to calls for an 'ex-ante' competition law to proactively prevent anti-competitive behavior.

The data dilemma, privacy and ownership: Data remains at the core of the digital economy, yet its governance presents significant hurdles. Past draft policies faced criticism for an outdated definition of 'e-commerce' and for blurring its lines with the broader 'digital economy.' More critically, issues surrounding data ownership, the need for explicit consent for sensitive data sharing, and the lack of clear definitions for various types of data (individual, community, national) persist. While the Digital Personal Data Protection Act, 2023 (DPDPA), aims to bolster privacy rights, its effective implementation and clarity on aspects like data retention periods and third-party data transfers are crucial. Consumer awareness about their data privacy rights in the online realm also remains limited, making them vulnerable to exploitation.

Integrating MSMEs and traditional retailers: India's retail sector is predominantly unorganized, with its share estimated at around 97 per cent of the total turnover, compared to just 3 per cent for organized retail. While e-commerce offers MSMEs unparalleled market reach, integrating them faces numerous barriers. For example, there is a digital divide as many MSMEs struggle to align their inventory management, warehousing, and operational processes with digital marketplace demands. Moreover, India's diverse geography and uneven infrastructure lead to complex and costly logistics for small businesses, especially for last-mile delivery and cross-border trade. Also, delayed payment cycles from large e-commerce platforms often strain the limited capital reserves of MSMEs. A study on e-commerce's impact on traditional retail in Bangalore highlighted a decline in foot traffic and sales for brick-and-mortar stores, necessitating adaptation through digital marketing and hybrid models.

Despite these challenges, there's progress. The government's Udyam Assist Platform has significantly boosted MSME formalization, with 6.2 crore MSMEs registered by March 2025, up from 2.5 crore in March 2024, paving the way for better credit access and policy impact.

Towards a harmonized and inclusive future

The ongoing policy discussion gives an opportunity to craft a framework that is both contemporary and equitable.

1.  A unified and contemporary definition of e-commerce, distinct from the broader digital economy, is essential for streamlined regulation and international alignment.

2. Clear data governance: Effective implementation of the DPDPA, with clear guidelines on data ownership, consent, and cross-border transfers, will build consumer trust and ensure data sovereignty. Enhanced consumer awareness campaigns are also vital.

3. Fostering fair play: Policymakers must address anti-competitive practices, potentially through an ex-ante competition framework tailored for digital markets. This would ensure that smaller players and traditional businesses can compete fairly.

4. Empowering the backbone: The retail trade policy should actively support traditional retailers and MSMEs in their digital transformation journey. This includes facilitating access to affordable credit, promoting digitization initiatives, improving logistics infrastructure, and encouraging hybrid online-to-offline business models. India's robust Digital Public Infrastructure (DPI), exemplified by Aadhaar and the Unified Payments Interface (UPI) – which recorded 24,100 crore transactions by June 2024 – can serve as a powerful foundation for widespread digitization, bringing more small businesses into the formal digital economy.

5. Export promotion: Leveraging e-commerce platforms to boost exports from Indian MSMEs and artisans remains a key policy direction, stimulating the domestic digital economy's global reach.

As India stands at the digital crossroads, the proposed e-commerce and retail trade policies hold the promise of shaping an inclusive, competitive, and dynamic retail landscape. The government's willingness to revise and adapt policies to reflect the sector's rapid evolution, combined with a multi-stakeholder consultative approach, will be critical in building a framework that benefits consumers, fosters innovation, and empowers both online and traditional businesses in the nation's journey towards a trillion-dollar digital economy.

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