Amazon and Walmart face an online shopping nightmare in India. The pair have committed more than $21 billion to the local scene, with most of that coming from the US supermarket giant, which in May agreed to buy leader Flipkart. Now an undated draft e-commerce policy seen by Reuters Breakingviews lays out strict new rules on discounts, among other things, which could derail their plans.

The framework, which also proposes forcing companies to store customer data locally, is supposed to address anti-competitive practices, creating a level playing field for foreign and domestic entities. In practice, it strikes a nationalist tone as oil-to-telecoms tycoon Mukesh Ambani, the country’s richest man, prepares to enter the e-commerce fray. Other parts of the policy seem designed to protect mom-and-pop stores.

It allows for an inventory model, but only for Indian-led platforms selling goods 100 per cent made in India. Under existing rules, companies cannot own stock and must operate as marketplaces connecting buyers and merchants. To get around that, sales on Flipkart and Jeff Bezos Amazon were initially dominated by large vendors. The rules were tightened, now they use a network of controlled sellers, according to one legal complaint cited by a newspaper.

There’s more. A ban on related-party sellers making bulk purchases of branded items like mobile phones would end the flash sales that helped companies rapidly acquire customers. Marketplaces would also be prohibited from directly or indirectly influencing prices. If strictly enforced, it would reduce the advantage of deep pockets and slow the adoption of e-commerce, still just 3 per cent of a retail market worth $860 billion in total, excluding travel and tourism, according to Praxis Global Alliance.

Its unclear how much of this will end up as law. For now, the plan plays well to the base of Prime Minister Narendra Modi’s BJP facing re-election within the year. But the risk is that instead of being celebrated for welcoming foreign capital, the South Asian nation could end up more hostile and difficult to crack for outsiders, like China. For the overseas giants betting billions on India, that would be a blow.

Una Galani is a Reuters Breakingviews columnist. The opinions expressed are her own; @ugalani

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