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Foreign e-commerce comapnies such as eBay could sell their own products in India under the proposed reforms. Courtesy of Ebay

India is likely to ease rules for foreign online retailers, allowing them to sell their own products in addition to sourcing from third parties, as the e-commerce sector is expected to contribute up to 4% to the country's economy.

Reuters reported that the new reform will be announced along with the upcoming budget in July – the first one by the newly-formed government led by Prime Minister Narendra Modi.

Foreign e-commerce giants such as Amazon and eBay operate in the country as sales platforms, and are not allowed to sell products they have sourced themselves. The new rules would pave the way for global retailers to bring their supply chain, and cheaper goods, into India.

Government officials expect that a more robust online retail sector would spur manufacturing and consumption in the country, people privy to discussions within the government told Reuters. That would help revive the economy, which has recently been experiencing a growth slowdown.

"Most stakeholders support FDI (foreign direct investment)," a senior government official told Reuters, referring to e-commerce. "We have pitched for opening it up completely."

E-commerce represents just under 1% of India's gross domestic product (GDP) at present, but the share is expected to increase up to 4% by 2020, according to industry surveys.

The move to open up the online retail market to foreign players comes as Asia's third-largest economy is finding it hard to allow foreign direct investment in the brick-and-mortar retail sector.

Valued at about $500bn (£299bn, €367bn), India's retail market is one of the biggest and most price sensitive in the world, and foreign retailers are trying to capitalise on the ever-increasing spending power of the country's consumers.

The ruling Bharatiya Janata Party (BJP) had earlier said in its election manifesto that it would scrap the previous government's measure to allow majority foreign ownership in multi-brand retail.

International retail giants such as Wal-Mart and Tesco, who announced their plans to invest in India, are already facing trouble due to lack of clarity in FDI laws. The BJP is likely to clearly state its intent to stop FDI in supermarkets.