India’s partial opening up of foreign direct investment (FDI) rules in the e-commerce sector could be “almost worse” for competition than maintaining an outright ban on FDI, according to Shanker Singham, President and Chairman of the Competere Foundation for Trade and Competition Policy.

In July 2025, the government relaxed its FDI rules, allowing foreign investment in e-commerce companies that hold their own inventory, provided that it is intended solely for export. Previously, FDI was prohibited in e-commerce companies that maintained their own inventory.

“The concern about the FDI restriction on the type of model you use to invest in India with regard to e-commerce is that you’re determining a particular model and allowing certain firms that don’t have that model not to benefit from the easement to the restriction and other firms that do have that model to benefit from it,” Mr. Singham told The Hindu in an interview.

“I would argue that allowing FDI in the inventory model only for exports is almost worse than having just a blanket investment restriction because you’re selecting models, saying certain models will work, certain other models will not work,” he added.

Cost of restrictions

According to a report by the Centre for Trade and Investment Law (CTIL) at the Indian Institute of Foreign Trade and the Competere Foundation, India still has several policy measures that result in Anti-Competitive Market Distortions (ACMDs).

The report estimates that these ACMDs could result in a combined economic loss of about $173.6 billion for the Indian economy over five years, equivalent to about 4.2% of GDP.

Of this, foreign-investment restrictions are estimated to account for around $127.2 billion. The remaining $46.4 billion is attributed to what the report describes as “competition-policy drift,” under which investors face disproportionately high regulatory requirements.

“These losses fall on India first,” the report said. “They reduce productivity, limit investment, weaken contestability, slow technology diffusion, and reduce the gains available from India’s own domestic reform success.” 

Balancing national security

Mr. Singham says that the government’s focus on encouraging manufacturing within India is important, but also says that it should consider whether such measures are worth the cost of the impact they have on competition. 

“I understand the government’s focus on encouraging manufacturing for export,” he said. “But, from a pure perspective of the effect on competition, that policy change doesn’t fix the problem. I think what would fix the problem is an elimination of the foreign investment restriction itself.” 

He added that the national security reason, as well, must be balanced between its validity and the impact it is having. 

Highlighting that national security considerations “are fine up to a point”, Mr. Singham said “national security is like any other regulatory objective.” The key questions are whether it is a legitimate regulatory goal and whether it can be achieved in the least anti-competitive manner possible. according to him.

India, for example, has banned a number of Chinese apps and has imposed restrictions on FDI coming in from countries that share a land border with India, including China. 

“If there isn’t a legitimate national security interest, the analysis stops there,” Mr. Singham explained, speaking generally rather than regarding any particular country. “If there is a national security interest, then you’d say, ‘is this the least anti-competitive way of achieving that goal’.”