On Friday last week, Indian government regulations on foreign e-commerce companies fully went into effect. Since then, Amazon (AMZN  ) and Walmart (WMT  ) - two e-tailers that have been trying to shore up market presence in the country - have been scrambling to comply with local operations.

India's new rules were created in order to level the playing field between local vendors and multinationals. The legislation entails a ban on negotiating exclusives by such big companies - i.e., smaller, India-based outlets can't sign agreements to sell exclusively on the platforms of these international corporations. They also can't sell items via other, smaller vendors they already have established business relationships with or hold an equity stake in.

In 2018, Amazon channeled around $5 billion into the Indian e-commerce market, while Walmart acquired Flipkart, a popular Indian e-commerce website, for over $16 billion.

The new regulation is sparking concerns about corporate retaliation, potentially restricting foreign direct investment (FDI) into India that could have a significant impact on the economy.

Harish H.V., a partner at accountancy Grant Thornton, said: "I think the US is going to make a big noise about it because Walmart has just put in $16 billion. If Amazon, too, thinks it is affecting their way of doing business, they may go and complain to the US government, saying these are restrictive practices."

The abrupt turnaround of the regulation has caused chaos. The companies have had to pull thousands of products from their online platforms rapidly. Around 400,000 items that constitute a third of Amazon's aggregate $6 billion yearly revenue in India could be withheld, at least temporarily. Some notable items include the Amazon Kindle, Fire TV Stick, and Echo speakers.

"Walmart is a very heavy investor both in Indian e-commerce and in the US, so naturally policy pressures will come. After they invest, you cannot make a rule that will jeopardize anyone's investment," said Harish H.V. "Every country is looking at India. India has not blossomed fully as [a foreign direct investment] destination yet. ... I don't think India should go in for protectionist measures now."

Local politics may have influenced the regulation, as Indian Prime Minister Modi hasn't been performing well in recent electoral statistics and national elections are being held soon. He's thus pandering to the demands of local vendors, partly alleviating the damage to firm profits caused by the goods and services tax (GST) introduced in 2016.

"A sudden change in rules is not helpful. It sends a message to groups that the environment is not transparent," said Mukesh Aghi, the US-India Strategic Partnership Forum president.