Negotiations surrounding a U.S.-India bilateral trade agreement have gained structure, with the two nations finalizing the Terms of Reference (ToR) to guide discussions, confirmed following a meeting Monday between U.S. Vice President JD Vance and Indian Prime Minister Narendra Modi.
Within this framework, the Trump administration is pointedly asking India to overhaul regulations governing its $125 billion e-commerce market, specifically seeking greater access for American companies Amazon and Walmart-owned Flipkart, according to sources familiar with the talks.
This push forms part of wider trade discussions also covering sectors like food and automobiles. U.S. Trade Representative (USTR) Jamieson Greer characterized the current relationship as having a “serious lack of reciprocity” and stated the talks aim to achieve “balance and reciprocity by opening new markets for American goods and addressing unfair practices that harm American workers,” noting a $45.7 billion U.S. goods trade deficit with India in 2024.
Decoding India’s Digital Marketplace Rules
The core of the U.S. contention lies with India’s specific Foreign Direct Investment (FDI) policies for e-commerce. Current rules permit 100% FDI through the automatic route for “marketplace” models, where platforms function solely as intermediaries connecting buyers and sellers.
However, FDI is explicitly prohibited in the “inventory-based model,” which prevents foreign companies from owning the goods they sell online directly to consumers – a structure readily available to domestic operations like Reliance Retail. Furthermore, foreign-owned marketplaces face operational constraints, including prohibitions on directly influencing seller pricing and a rule stipulating that no single vendor can contribute more than 25% of a platform’s total sales.
These regulations, initially established to shield smaller domestic retailers, are now a key friction point in the trade discussions, with the U.S. demanding what officials describe as a “level playing field.”
Domestic Concerns and Regulatory History
This external pressure meets considerable domestic sensitivity in India. Praveen Khandelwal, secretary-general of the Confederation of All India Traders (CAIT) and a BJP MP, characterized the U.S. push as “economic diplomacy aimed at securing market dominance for its corporations.”
He elaborated that while foreign investment is welcome, it “must not come at the cost of distorting India’s retail ecosystem or undermining the interests of its [nine crore] small traders.” The rules under debate have also been subject to prior domestic scrutiny; India’s Enforcement Directorate previously investigated both Amazon and Flipkart around November 2024 for potential violations of foreign exchange laws related to perceived indirect control over preferred sellers.
Amidst this, Walmart’s Flipkart recently shifted its legal domicile from Singapore back to India, a move viewed by some analysts as potential groundwork for a future IPO while navigating India’s complex regulatory environment.
Tariff Tensions Set the Stage
The focused push on e-commerce regulations occurs against the backdrop of the Trump administration’s broader, more assertive trade policy introduced earlier this month. On April 2nd, the U.S. announced a new general tariff system, featuring a base 10% rate plus adjustments derived from a formula calculating a “discounted reciprocal tariff.”
The calculation itself, drawing comparisons to AI chatbot logic, was criticized by economists like James Surowiecki as “extraordinary nonsense.” The policy announcement triggered market volatility and spurred predictions of higher consumer costs.
Although President Trump initiated a 90-day pause on tariff hikes for major trading partners starting April 9th, partly seen as a result of India’s efforts to avoid such levies, the underlying policy framework provides the U.S. considerable leverage in current negotiations.
Wider Ripples Across Global Trade
The uncertainty radiating from U.S. trade actions has had tangible effects beyond these specific talks. Major companies like Apple have been navigating the turbulence; CEO Tim Cook reportedly discussed potential tariff impacts on iPhones with Commerce Secretary Howard Lutnick during the week of April 7th, following contradictory administration statements regarding potential exemptions for electronics.
Wedbush analyst Dan Ives described the situation as creating “massive uncertainty and chaos for companies trying to plan their supply chain, inventory, and demand.” In late March, Apple even conducted a pre-emptive airlift of products from manufacturing hubs, including India.
Global logistics has also felt the strain; DHL suspended high-value (over $800) business-to-consumer shipments to the U.S. starting April 21st, citing processing delays caused by a U.S. Customs rule change effective April 5th that lowered the threshold for formal clearance.
These operational challenges coincide with stated administration aims to curb the use of the $800 de minimis threshold, particularly for shipments from China and Hong Kong, and retaliatory measures from China, like export controls on rare earth minerals announced April 4th.
Source: Winbuzzer / Digpu NewsTex