Global online retailers are lobbying hard to secure entry into India's $500 billion retail market and e-business majors such as Amazon.com Inc expect to sell their own products in the country as early as next month.
Removing restrictions on foreign firms would open up one of the most price-sensitive retail markets that have held back competition through government curbs, they point out.
The purportedly business-friendly government of Prime Minister Narendra Modi is expected to announce the decision in the budget, in one of the first tangible signs of economic reform overseas investors are keenly looking for in India.
Such a move would also help the government overcome the current opposition to opening up multi-brand retail trade to multinationals like Wal-Mart at the cost of local kirana stores.
The argument they put forth in support of online retail trade is that it would increase consumption because of the ease of purchase and thereby spur manufacturing activity, helping revive an economy that has been growing below 5 per cent over the past two years.
While the Bharatiya Janata Party (BJP) has been criticising the UPA government's FDI policy of allowing multi-brand retail trade, mainly due its concern for the small traders, the proposal to open up the e-commerce sector seems to be not worrying the party or its leadership.
On the campaign trail, Modi himself had asked small traders not to feel intimated by big online retail chains. "We should not worry about these things. Our children have taken IT to the world. We`ll have to embrace it," he told a gathering of small traders in February.
The bureaucracy is also reported to be wholly in support of the stakeholders in allowing wholesale entry of e-commerce firms and the official machinery has Modi's blessings to push forward reforms.
Reports also cite industry surveys to show that e-commerce could contribute up to 4 per cent to India`s economy by 2020 from under one per cent at present.
Modi will eventually decide investment guidelines as well as the foreign ownership cap, but the sources said the rules will be clearer and better than those for foreign investment in the supermarket sector.
Implementation of the policy will also not be left to the discretion of individual states, although local sourcing and investment in the supply chain will be required.