Rising protectionism by the central government may have possibly led to the US ending the preferential trade status with India, said industry analysts and experts.

On Tuesday, Washington announced its decision to discontinue with the generalized system of preferences (GSP) for India, claiming it to be a high-tariff country.

This comes after several changes in regulations, including the foreign direct investment (FDI) rules in e-commerce and increased cost of medical devices, which caused a negative impact on some of America’s top companies such as Walmart, Amazon and Boston Scientific Corp.

“The increased protectionist stance, and an indication of more to come, could have led to the US government reacting the way they did," said Anirudh Rastogi, founder, Ikigai Law, which works with several tech companies in India.

The FDI rules, which came into effect on 1 February, have had a major impact on Amazon, which has been increasing its investment in the country, and Walmart, which spent $16 billion to buy a 77% stake in Flipkart in 2018.

While the US government would have reacted as a result of the new FDI rules, which make it difficult for these companies to do business in India, some lawyers are of the view that this may not be the only reason.

“It may be the lack of predictability and a difficult environment of doing business in India, which has a negative impact on American businesses, that has led the US government to take this decision," said Poorvi Chothani, managing partner at Mumbai-based law firm LawQuest. “These rules make large foreign companies wary of making huge investments in India."

Some of the recent rules that have had a possible impact on American companies include the increasing focus on data localization in the recently-released draft e-commerce policy, and the proposed amendment to IT Intermediary Guidelines, wherein a foreign company in India with more than 5 million users will require to have an India office and a nodal person, among others.

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