At present, 100 per cent Foreign Direct Investment (FDI) is allowed only in business-to-business (B2B) e-commerce and not in retail trading.
The Department of Industrial Policy and Promotion (DIPP) has started the exercise on the matter and has prepared a "draft note".
"The issue requires wider consultations. E-commerce is not related only with retail. It includes financial services like insurance and shares. We will soon start consultations," a senior official in the DIPP told PTI.
The draft note has looked into issues like international practice in permitting FDI in e-commerce besides analysing the sector.
An economic think-tank has also been asked to prepare a note on the issue, the official added.
Global online retailer Amazon.com has sought relaxation in the FDI policy, which restricts such companies from offering services directly to retail consumers.
According to a media report, business-to-consumer e-commerce segment will attract investment in back-end infrastructure of companies in country which in turn will create multiple job opportunities.
IT-ITeS industry body NASSCOM president Som Mittal has already met DIPP Secretary Saurabh Chandra on the issue.
The Consumer Affairs Ministry too is planning to formulate comprehensive guidelines to deal with e-commerce.
It has suggestions from Finance and IT ministries to carry the plan forward.
The subject of e-commerce was relatively new, but had become extremely crucial due to global digital integration, widespread use of Internet and convenience of on-line business transactions.
During the July meeting of the United Nations Conference on Trade and Development (UNCTAD), India had communicated its strong viewpoint supporting regulation of e-commerce to protect interest of global consumers.
Besides Amazon, eBay is already present in India through complex marketplace format. Both are pitching to open the e-commerce sector.
While foreign companies cannot directly offer online retailing, there is no FDI restriction in the marketplace format, which is about offering a platform for third parties and consumers to sell and buy products.
The US Government wants India to allow FDI in e-retail so that American companies such as Amazon and eBay can start operations here.